How to Give Your Adult Kids the Boot?
As a proud mom and mortgage broker, I know that it can be tough for young Canadians to make the leap into home ownership these days. I just assume I will be the one buying both my kids their first homes. I mean how in 15-20 years will they be able to if prices are the way they are now.... With sky-high prices, pesky stress tests, and those darn interest rates, it's no wonder that so many are turning to the good old Bank of Mom and Dad for help. But as a parent, you don't want to be an enabler forever, do you? No, it's time to show your adult kids the door and help them stand on their own two feet (or four, if they're into that kind of thing).
Here are some tips to help you, guide your little birds out of the nest and into their own homes:
Help With the Down Payment? This is the classic move, and for good reason - it's flexible, and you get to decide if you want to loan or gift the money. Just make sure you have a chat with your kid beforehand to set expectations and consider getting everything in writing to avoid any misunderstandings. If you do choose to gift the money, you'll need a gift letter from your mortgage professional to make sure everything's above board. A gift and a loan are two different things. Honesty is always the best policy so please tell me the truth.
Co-sign the Mortgage? If your kid is having trouble getting approved for a mortgage on their own, you can always step in and co-sign. Just remember that you'll be on the hook for the mortgage too, so make sure you understand the risks and benefits before you sign on the dotted line. And be warned - having a mortgage in your name could affect your credit score and future borrowing potential.
Loan the Money? If you're feeling generous but maybe want to make some interest, you can loan the money to your kid instead of gifting it. Just be sure to work out the payback terms ahead of time, and consider involving a lawyer to make things official. Keep in mind that if the loan needs to be repaid, it'll be factored into your kid's application for a mortgage. These numbers will work into their ratios.
Utilize the "Refi & Buy" Strategy. If you're really forward-thinking (and have some spare cash), you can consider buying an investment property that your kids can eventually live in or sell for a tidy profit. You'll need a minimum down payment of 20% for this one, but you can use the equity in your current home to get you there. Just remember to do your homework and crunch the numbers before you take the plunge.
The last thing to consider is of course the old saying. STOP COOKING WITH CHEESE. It's great that you want to help your kids out, but it's important to do it in a way that sets them up for success in the long run. Have those tough conversations, get everything in writing, and don't be afraid to show your kids that it's time to fly the coop. Good luck!