Should You Help Your Adult Kid Buy a House?
Are you thinking about helping your child buy his or her first home? If you are, you’re not alone. Here, some key things to consider.
More than a quarter of first-time home buyers in Canada got financial help from their families by way of either a loan or a gift, according to a recent survey by Genworth MI Canada Inc., the country’s largest private mortgage insurer.
With skyrocketing housing costs in cities like Vancouver and Toronto, it’s understandable that coming up with a down payment on even a modest home can be a challenge.
“This is a very important subject,” says Scott Hannah, President and CEO of the Vancouver-based Credit Counselling Society. “There’s lots to think about, but everyone needs to remember there is a huge difference between feeling obligated and being obligated.”
Parents who can realistically afford to help with a down payment should consider a number of important factors, the first of which is whether that help would be a loan or a gift. Hannah says he personally prefers the gift option since he’s seen too many relationships fall apart over repayment issues. And he also prefers smaller gifts over bigger loans – but only under certain circumstances.
The key things Hannah says parents need to think about when deciding whether to help out with home ownership.
1) Know how your kid deals with money: Are they living within their means, carrying consumer debt, putting money aside for retirement? “If they aren’t managing their money effectively and haven’t set any financial goals you’re doing them a disservice giving them a down payment,” says Hannah. Credit card debt, for example, is serious cause for concern and needs to be paid off before any consideration is given to taking on a mortgage, he adds. “If your kids haven’t learned to set aside some of their own money, you shouldn’t feel obligated to part with yours.”
One option – if you can afford it – is to offer to match, dollar for dollar, what your kid saves – once he or she has saved their portion first. Your son or daughter has to be prepared to make sacrifices for what they want – they’ve got to have some skin in the game. We have to remember we’re not there to be their friend, we’re there to be their parent and offer good guidance.”