Best intentions may have unforeseen consequences
One of the interesting factors supporting real estate growth is the role of financial support of parents and grandparents on some home purchases. The rationale for this growing practice is simple. Parents want their children to be able to get into the real estate market – and live remotely close to the type of neighbourhood they grew up in.
Many young Canadians are working multiple part-time jobs in order to make ends meet, and that might not be a bad career strategy.
With the average price of a detached house at $635,000 in greater Toronto, and $925,000 in greater Vancouver, it is easy to see a challenge for both first and second-time homebuyers.
If you want to help your child with a home purchase, there are a couple of factors to look at. The first is the parenting philosophy of an individual. The second would be the financial strength of the parent. The third might be the financial strength of the child. The fourth might be the strength of a child’s marriage.
Philosophy of the parent
In the past, it was much more likely that parents would say ‘I never had any help buying my first house, so my kid can do it themselves’. Today, with the daunting house prices facing those first and second time home buyers, it leads many parents to a different opinion.
Many parents have personally seen the financial benefits of home ownership. They also see the financial struggle and limited housing options facing many of their children, and have decided to do something to help.
In some cases, helping means a loan with normal interest rates. In some cases it is a loan with lower or no interest. In some cases it is effectively a gift.
Today, we are seeing a general philosophy of parents wanting to help their children with real estate – assuming they have the financial strength.
Do you look at a child with a good job and a decent savings discipline, and help them get a leg up? Or do you let that child fend for themselves because they will likely be OK, but only help out the child that will never be able to afford a home on their own? Do you make sure that all children receive equal benefits? Our general recommendation is to assume you are helping all children equally, regardless of their personal financial strength. After all, as the Smother’s Brothers used to say “Mom always liked you best.” Kids never outgrow that issue and concern. This means that if you think you can help your children with $300,000, and you have 3 children, you better not overextend to the oldest child and then run out for child two and three.