Real estate | Helping your child buy their first house

Houses are expensive, very expensive. Young buyers are struggling to raise the capital required to deposit a down payment. To “go to the bank”, they are turning more and more to daddy-mommy. Practical advice – and pitfalls to avoid – for parents who want to help their child become homeowners.

The gift rather than the endorsement

“Without any doubt, a cash donation is the best thing to do,” explains financial planner Sylvain De Champlain.

Why, then ? “It’s a concrete way [pour les parents aidants] to have a direct and immediate impact on their child’s personal finances, ”explains the founding president of De Champlain Financial Group in Anjou.

In his practice, he sees more and more clients asking him for advice on how to enable their son or daughter to own property.

“I would even say that it is a relatively recent phenomenon,” he observes.

He argues that baby boomers are the first generation to have the cash flow to be able to intervene in a real estate transaction in favor of their offspring.

“Not all parents have the means to give an amount that can vary between $ 25,000 and $ 50,000,” he puts into perspective. But those who can afford it derive great satisfaction from it. “

The experienced planner is quick to warn parents who might be tempted to “give too much” without considering their own financial health.

“Sometimes I say to my clients: ‘Be careful not to help your child to your detriment!’ Because there is a risk in getting carried away by a legitimate outpouring of generosity. “

Solutions

One thing is certain, notes for his part the financial planner Martin Davidson, parents are more and more “enlightened” on this societal issue.

“Seventeen years ago, when I started out in the profession, we didn’t talk about that, if not very little,” says the branch manager at IG Gestion de patrimoine in Shawinigan. I barely dealt with one file per year. Things have changed considerably. For two years, not a month has gone by without one of my clients asking me to help them find a solution. “

The most common question that comes up is, “My son – or my daughter – is having a hard time with mortgage financing. “

And what does he offer them?

“A donation during his lifetime,” he replies. This is the best option. And it’s also the simplest, the one that requires the least amount of paperwork to fill out. ”

Conversely, he strongly advises his clients against acting as surety for their child to meet the conditions of the lending institution.

“But it is often the reflex of the banks to suggest to the young person to go see his father, his mother, his parents [pour qu’ils viennent en renfort] He submits.

A point of view shared by Sylvain De Champlain: “There is no advantage in being a co-signer for the loan of your child, it is to be avoided at all costs! If the son or daughter loses their job or can no longer pay their property taxes, who will pay in their stead? It’s daddy-mom. We don’t want that. “

Legitimate fears

Martin Davidson does not hide the fact that some of his clients, however well-meaning, are going to tell him about their fears, quite legitimate, about the risks of giving in their lifetime.

“I would say that their greatest apprehension is to lack money,” he explains. They will tell me: “Will I have enough for my retirement if I give $ 50,000?” [pour la maison que souhaite acheter fillette ou fiston ?] There is also the fact that parents want to be fair to all their children. They are willing to give, but they want the gifts to be distributed equally. ”

One of her clients, in her seventies, has just started giving planned gifts to her two sons, aged 39 and 41. In this specific case, the sons own their house.

“It will allow them to repay their mortgage more quickly, or even to pay for renovations,” said the retiree who prefers not to be named.

And how does he go about paying these amounts “of a few tens of thousands of dollars”?

“On the advice of my financial planner,” he says, “I decided to spread the donations over a five-year period. I take out some of my investments and transfer this amount to their account. It is done once a year. ”

It goes without saying that his sons are grateful. “It helps them, of course. There is a pleasure in giving during your lifetime. I can see what these funds are used for. And my guys take care of me. I am not a loser. ”

But before moving forward, he wanted to be reassured by his financial planner who told him: “You have enough money to make it 100 years old!” “

Small detail which is of great importance: before accepting, his sons had an interview with Martin Davidson, who took the time to explain to them in detail the approach of their father, his client.

“They didn’t want [surtout pas] that it’s getting me in financial trouble. “

This is how it turned out. Simply. It’s clear.

When he goes for his coffee with his good friends, he does not hesitate to tackle this question, still delicate, sometimes even taboo, concerning donations during his lifetime.

With humor, there is this small sentence of great relevance: “I think it’s better to start giving while you’re alive rather than after!” “

A parental boost that is often essential

What causes parents to give $ 50,000 or even $ 100,000? And why do 25-35 year olds demand the financial intervention of mum and dad? We asked the question of two mortgage brokers, whose job it is to obtain mortgage financing at better rates from lending institutions.

“Generally, my young clients have a good record [de crédit], believes Philippe Béland, independent broker in Laval, and member of the Mortgage Consortium. They are often professionals who have just graduated from university. They are on rent and they want to buy a house. ”

However, due to the real estate frenzy – and the explosion in property prices – these first-time buyers understand that they will not be able to achieve their dream without a serious financial boost from their parents.

In some cases, he finds that the parents will themselves make the decision to make a more substantial donation so that their child does not have to have their loan insured by the Canada Mortgage and Housing Corporation (CMHC). They will thus make a donation representing 20% ​​of the amount to be borrowed, or $ 80,000 for a house of $ 400,000.

Lots of questions to ask

In his Gatineau office, broker Patrick Dumond, at Multi-Prêts, receives young buyers sometimes accompanied by their parents.

“Parents ask a lot of questions,” he says. It’s been a while since they bought their house and they want their child to make the right choice, with the right financing. ”

Beyond the amount they are willing to give, they are willing to consider the various options that are on the table. “It’s the parent who makes the donation, but it’s the child who decides in the end! He said with humor.

We will ask him, for example, if it is a good thing to buy the house “jointly” with his child. We will also assess the possibility for the parent to sell the family home to his child for less than its true market value.

“We will then be talking about an equity donation that could reach $ 80,000, and even more,” he said. There is no exchange of money since the equity is taken into consideration between the lender [la banque] and the buyer [le jeune]. ”

But to sell the family nest to your child, you have to be ready to move … and buy another property.

“It applies [généralement] when the parents are ready to live in a smaller house, ”he says.

It’s a think about it …