For Canadians in most parts of the country, spring had a later start than usual. Whether your adult child is looking for a home this year or is planning to purchase a home in the coming months or years, it’s never too early for them to get their finances in order.
Buying a home isn’t as easy for kids these days as it was even a decade or two ago. High home prices coupled with the mortgage stress test means that it’s tough to even afford a starter home in a decent location. This had led to a lot of parents helping out their adult kids financially to afford a home.
Let’s take a look at some good ways parents can help adult kids buy a home sooner.
Gifting the Entire Down Payment
The first way to help out your adult child is by gifting them their down payment. If you’re in the financial position to do that, gifting them their down payment can let your adult child buy a home in a decent neighbourhood sooner. Maybe they’ll even choose a place close to you. You might do what is called “living inheritance,” when you gift your adult child part of their inheritance when you’re still alive.
A word of caution about this – gifting your adult kid their down payment is fine as long as they appreciate it and it won’t set you back financially. As much as you want to help, gifting your adult child their down payment shouldn’t set back your retirement or involve taking out a reverse mortgage on your home. If that’s the case, maybe you can to help them in other ways.
Matching Down Payment Money
If you can’t afford to gift your adult child their entire down payment or you’re afraid they won’t appreciate it as much as they should, you might consider only gifting them a portion of their down payment. This can be done in several ways.
Personally, my favourite way is to match your adult child’s down payment. This helps your child work towards their down payment and incentives them to save. For example, if your adult child saves $10,000, you’ll match it with $10,000 of your own. This can help them get in the good habit of saving later in life.
A variation of matching is topping up your adult child’s down payment. For example, if your adult child saves 15 percent towards a down payment, you’ll top it up by 5 percent to help them avoid mortgage default insurance (this adds up to a 20 percent down payment). It’s a really nice gesture!
Living at Home Longer
There’s no shame in not being able to afford to gift your adult child money. However, a way you can really help them out is letting them live at home longer. This lets your adult child “supercharge” their down payment since they won’t be paying market-level rents.
If you do this have a serious conversation with your adult kid ahead of time. Explain why you are letting them live a home. Set rules and responsibilities. Let them know any chores they are expected to do and how long this arrangement will last. Emphasize that you’re doing this to help them save a bigger down payment sooner. That way they’re less likely to blow their extra money on frivolous things.
There are several ways to do this. You can let them live at home and charge them below-market rent. You could also choose not to charge them any rent at all. Regardless of how you do this, by getting your adult kid on board, it will help make this a win-win situation for both parent and child.
Are you not sure the best way to help your adult kid with their down payment? Contact our offices today to come up with a good savings strategy.
Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.
About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.