How to help your child become a homeowner

What should you consider when helping your child buy a property? 

Helping your child buy their first property is an admirable thing to do. However, you need to make sure it doesn’t compromise your own financial health or your short-, medium- and long-term savings goals. 

Start by asking yourself the following questions:  

• Do you have the means to help your child?  
• How would you like to do this?  
• What is the maximum amount you can offer? 

Here are the steps you should take to help you answer these questions and encourage further reflection: 

Draw up a financial plan 

A financial plan can help you determine whether you can afford to give your child a financial gift, a loan or another form of financial support. This plan should take into account your lifestyle, your needs, the projects you wish to carry out and the time horizon you’ve set for achieving these goals. It should also consider your life expectancy to ensure you have enough money for your later years.  

Based on this important information, your financial advisor will carry out various simulations. Together, you’ll be able to identify the best strategy for providing financial assistance to your child without compromising your other objectives. 

Assess the tax implications of your financial support 

Remember that the financial support you provide your child may have an impact on your taxes. This is particularly true if you use funds from a non-registered account, an RRSP or a RRIF. That’s why it’s important to consult your financial advisor and find a strategy that minimizes the impact.  

For example, rather than withdrawing a large amount from your investments and giving it to your child, you could make smaller payments over several years. This way, you cushion the tax impact of a large withdrawal while helping your child contribute to their own FHSA, RRSP or TFSA.  

How can you help your child buy a property? 

There are a number of ways you can support your child’s plans to become a first-time buyer. Understanding the key features of each option will help you choose the one that’s right for you. 

Give a cash gift  

If you give your child a cash gift for the down payment on a primary or secondary residence, this means you expect nothing in return. This generous gesture has no tax impact in itself. However, you must sign a document, notarized or otherwise, stating explicitly that the money is a gift and not a loan, and that the sum will not be repaid. Specify the date, the amount and the relationship between you and the person receiving the gift. 

Another option would be to help your child pay for notary fees, welcome taxes, moving expenses or the purchase of furniture or appliances.  

Provide a loan  

By granting a loan to your child, you can offer them financial support on the condition that the amount is repaid in accordance with the terms and conditions you agree to together. An interest-free or very low-interest loan to buy a primary or secondary residence will have no impact on your taxes. However, if the property is going to be rented out, there may be tax implications. In this case, you should consult your accountant or tax advisor. 

Good practice: Just as with a cash gift, it’s best to formalize your loan to avoid any potential conflicts. Draw up a contractual agreement, notarized or not, containing the following information: 

• The date 
• The amount 
• The maturity date 
• The interest rate 
• The payment schedule  
• Conditions for debt cancellation 

Become a joint borrower or co-owner 

If your child doesn’t qualify for a mortgage with a financial institution, you can help by becoming a joint borrower or co-owner. 

If their down payment is 20% or more of the purchase price, and it’s a conventional mortgage, you can co-sign the loan and become a joint borrower. In this case, the mortgage lender will turn to you in the event of default on monthly payments, and you’ll have to repay all or part of your child’s debt.  

If their down payment is less than 20% of the purchase price and therefore requires mortgage insurance, your only option is to become a co-owner. In this case, your responsibility will be even greater, since you’ll have to cover your share of the mortgage payments as well as school and municipal taxes. Your name will also appear on the property title, and owning two residences will have an impact on your taxes when the properties are sold. 

Donate a property  

You can help your child become a homeowner by donating your own property. This donation would involve transferring a property without asking for any money in return. 

This can be an appealing option if you want to pass on your assets during your lifetime and keep your property within your family. If you live in a province other than Quebec, property donation can reduce the size of your taxable estate and therefore minimize the tax bill for your estate when you pass away. 

→ Check out our article on transferring a property during your lifetime  

How can you offer your child financial support while avoiding conflict? 

When it comes to family and money, the risk of conflict is high. If you have several children, it’s particularly important to have an open discussion to avoid any feelings of inequity. Take the time to explain your intentions clearly but also to specify your financial limits to clarify expectations. By being transparent, you’ll help to avoid any potentially heated discussions. 

Take the opportunity to make an appointment with your financial advisor or notary to update your estate plan. You should include the loans and gifts you’ve made to your children at different stages in their lives (education, marriage, down payments, etc.). This will help you keep things fair should you want to leave more to those who haven’t benefited from this kind of financial support.  

Why should you financially support your child in buying a home? 

Buying a property is a significant step in your child’s life. Your financial support can make a real difference in helping them become a homeowner and start building their own assets.  

Depending on your situation, you can offer a financial gift, a loan, co-sign a mortgage, become a co-owner or even transfer your property to them. Whatever you decide, remember that it’s essential not to compromise your own financial health. With proper planning, you can avoid unpleasant surprises and tax implications. 

Don’t hesitate to seek professional help to ensure you make the best decisions.