3 Ways to Help Your Child Buy Their First Home

You would like to help your children find their first home. Here are three solutions to consider as part of your approach.

Lend a hand ... and money
It is normal to want to help your child buy their first house. Some parents see it as common sense: they buy a house for their child and live in it during his university stay; others do it to help their child get off to a good start.

Three possibilities are available to you:

1. Make a loan
You can lend the money at a lower interest rate than the market, or better yet, at the same rate as your savings account.

What to consider:
• You must report the interest income.
• According to the Canada Mortgage and Housing Corporation (CMHC), your loan is not your child's down payment, so a supplement will be required for CMHC's regular mortgage default insurance.

2. Co-sign your child's loan application
It's a simple way to help him, if all goes according to plan. However, it is preferable to resort to another solution.

Things to consider:
• By co-signing the loan, you are sending the message to the bank that your child is not creditworthy.
• If you already have a mortgage, you and your child are not eligible for a high proportion mortgage, in which case the down payment required will be 20%. On the other hand, if he takes the steps alone, your child will only have a 5% down payment to pay.
• In the event of non-payment, you will be held responsible for the mortgage payments.
• The title deed will be in your name. So if things go wrong, you will be held accountable in the eyes of the law. Check with a lawyer.

3. Make a cash donation equivalent to the down payment or loan repayment charges.
Some parents give their child the full amount required to purchase the house. In Canada, donations of money are not taxable, no matter how much you donate. What to consider:

• If you plan to include this gift in your will, then your child will be exempt from paying probate fees after your death.
• If you buy a house to donate to your child, it is like selling it to them at the current price and any capital gain is taxable, but cash donation is not.
• If your child is about to get married, think twice before making a cash donation, because in the event of a divorce, the equity in the property is shared between both parties, even if the house is a donation from your family go.
While there are many ways to help your children find their first home, make sure you can do so while keeping your retirement savings plan on track.