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The-Mortgage-Gal

Help with kid's first home

Sometimes, our children come to us for money to go out with friends, buy clothes, computer stuff or games and and the more they ask, the more we realize that we have created their reliance on us. 

We can try offering to pay a portion which at least teaches them to learn to save for those things that they really want.

What about a down payment for a house. How does a parent handle assisting their child who can't save for a down payment on a home. 

Here are a few things to consider.

Make it a starter home or condo

  • If you are going to assist your child in buying a home it is important to make sure that not only can they afford the mortgage payments but also the property taxes, maintenance and other costs such as insurance an utilities. If you don't there will be further requests for money. 
  • A starter home or condo is a good idea because it is pointless to help your child buy a home that their income cannot afford. Buying a bottom end home will move them into the market and allow them to build some equity to move up to another home later.

A gift from your estate

  • If you give your child a gift toward the down payment of a home, there are no negative tax implications for you unless you have to dispose of an asset that will create a taxable captial gain.
  • If your child buys a home and is living in it as a principal residence, the property will be exempt from tax for any gains in value. The one thing to consider is that if your child is married and later divorces the gift that was invested into the matrimonial home will be split. 
  • If the gift is made prior to marriage, it may not need to be split, but this is something to be discussed with a family lawyer.
  • If you are a U.S. citizen giving a gift over $14,000 US may trigger a gift tax liability. There is a tax exclusion amount and it is preferable to speak to a U.S. tax expert before deciding to gift your child.

Consider a mortgage loan

  • If you lend money to your child to buy a home, there are no negative tax implications. Lending them the money will allow some control over the property if you register a mortgage on the property. 
  • The terms of the mortgage can be decided by you and can be interest bearing, non interest bearing, have repayment terms of principal and interest or interest only or can be due upon sale.
  • If you lend the money to your child and they get divorced you will be entitled to be reimbursed for the mortgage outstanding, which will protect your child's investment.
  • The mortgage you hold will be an asset and may have estate probate fees associated with it. These should be relatively small but again talking with a financial planner or accountant will clarify this for you. If you are a U.S. citizen, however, you will avoid the gift tax issue.

Transferring property as a gift

  • If you have a rental property you may consider gifting it to your child but make sure you check on the tax implications. The market value will need to be determined and an appreciation will be taxable. 
  • There may also be property transfer taxes payable. Consulting a tax expert and lawyer are always a wise decision before making any large purchases or dispositions.

If you have further questions on assisting your children in buying a home please contact me at 250 862 1806 or email [email protected].

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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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