Our Two Cents

October 26, 2023 | Vito Finucci


How to help your children buy their first home - a financial guide

We address one of the most pressing topics for parents in Canada – helping your child buy their first home. The dream of homeownership remains alive for many young Canadians, but the rising costs of starter homes, often between $300,000 and $700,000, make it increasingly unattainable. With a median household income of $70,000 in 2021, most young individuals struggle to save for a down payment, let alone qualify for a mortgage.

So, how can you support your children in their quest for homeownership? We've compiled four essential ways to help you navigate this financial journey:

1. Add housing gifts to your wealth management goals

  • Assisting your children is a significant financial decision, and it's crucial not to compromise your own financial future. Consulting a wealth advisor to model and integrate this assistance into your financial plan is a smart step. It's essential to consider how your help might affect taxes and family law issues, especially in the event of a divorce. The key is ensuring your children's future doesn't come at the cost of your retirement lifestyle.


2. Give money to invest in a First-Home Savings Account

  • Starting from April 2023, the federal government introduced the FHSA, allowing first-time homebuyers to save for a down payment tax-free. While you can't directly contribute to your child's FHSA, you can gift or loan them up to $8,000 annually, up to a lifetime maximum of $40,000. When these funds are withdrawn to purchase a house, they remain tax-free. Contributions to the FHSA reduce the account holder's taxable income, and they can be carried forward to future tax years. Combined with the Home Buyers' Plan (HBP), which permits up to $35,000 to be withdrawn from an RSP tax-free for a home purchase, your child could save up to $75,000 towards their first home.


3. Give a downpayment or a forgivable loan

  • Given the challenges of rising real estate prices, higher interest rates, stricter mortgage rules, and increased living costs, many parents are assisting their adult children with down payments. A survey from the Ontario Real Estate Association revealed that 40% of parents had helped their children (ages 18 to 38) buy a house, with the average gift being $71,000 and the loan, $41,000. The gift of a down payment can be viewed as a 'living inheritance' and is not taxed as income in Canada. Alternatively, a forgivable loan offers flexibility and protection in that you have a debt against the home with a formally documented loan, with the option to forgive the debt in the future.


4. Become a guarantor

  • As a guarantor on your child's mortgage, you use your credit rating to secure the loan. While this can be a helpful step, it carries inherent risks. In-depth conversations with your children are essential to discuss budgeting and planning for unforeseen expenses. Keep in mind that, as a guarantor, you share responsibility for the mortgage, and any issues with repayment can affect both your child's and your credit rating.

Regardless of the strategy you choose to help your children buy a home, open and comprehensive conversations are necessary. Planning for the future can be challenging, but with careful consideration and the right financial guidance, you can pave the way for your children's homeownership dreams.

Remember, every family's financial situation is unique. If you have any questions or require personalized advice, don't hesitate to reach out to us. Your financial well-being is our priority.


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