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<\/a><\/p>\nPhoto: James Bombales<\/em><\/p>\n Money and family can be a tricky combo to manage, especially when comes to one of life\u2019s most expensive purchases \u2014 buying your first home.<\/p>\n As tougher mortgage rules<\/a> and high prices leave new buyers at a disadvantage, some parents are stepping in as the Bank of Mom and Dad to secure housing for their adult children. Canada\u2019s Financial Planning Standards Council<\/a> found that 33 percent of parents with children over the age of 18 have or intend to financially assist their kids with their first home purchase. The choice to gift money towards a downpayment or co-sign on a mortgage instead of leaving an inheritance is not always made for investment reasons alone.<\/p>\n \u201cThe primary reason is that parents what to see [their] kids enjoy the money while they are alive,\u201d says Jamie Golombek, the Managing Director of Tax and Estate Planning at CIBC. \u201cAnd also, to avoid going too much into debt and burdening the child with higher mortgage payments than he or she can afford.\u201d<\/p>\n\n While providing monetary support can give adult children a leg up onto the property ladder, personal finance educator and consumer advocate for the FPSC Kelley Keehn says that there\u2019s plenty of potential for something to go wrong without careful planning and professional oversight.<\/p>\n \u201cIt is complicated and should be given a lot of thought. It can unravel fast because there\u2019s a lot of emotions and because it is a big decision and a big purchase in life,\u201d says Keehn. \u201cI think that\u2019s where having some professionals on your side to help with that conversation, to help you see the blind spots of what you might not realize, is very important.\u201d<\/p>\n If you\u2019re considering asking mom and pop for a hand with your first mortgage payments, we gathered a few pointers from Keehn and Golombek on how to tap into the Bank of Mom and Dad.<\/p>\n Whether it\u2019s $500 or $50,000, parents and adult children who are involved in home buying together need to get on the same page. Keehn says that it\u2019s important for families to establish the financial support the homebuyers will receive \u2014 is it a gift with no strings attached, a loan that\u2019s expected to be paid back, or a form of inheritance that would have otherwise been given following a death? Families should remember that gift money is not taxed in Canada. Golombek explains that in cases where adult children are receiving money from their parents for housing, with the exception of appreciated stocks where a capital gains tax would apply on the growth, there is \u201cno negative tax consequences\u201d for parents to gift down payment money.<\/p>\n Photo: SeniorLiving.Org<\/a>\u00a0\/\u00a0Flickr<\/a><\/em><\/p>\n Flushing the details out beforehand with a certified financial planner, Keehn says, helps determine the course of the financial support in the event of a big life change, such as a death or divorce. If the homebuyers split up, is the downpayment returned to the parents? If a parent dies, how will other siblings play a role if a mortgage was secretly secured for one of the adult children? To avoid any grief down the road, Keehn says these questions need to be answered.<\/p>\n \u201cSome parents keep it confidential during the years that they\u2019re alive, but it certainly creates a lot of heartache and resentment if there aren\u2019t provisions made for other siblings at death,\u201d she says.<\/p>\n Golombek says that if there are concerns about marriage breakdown or mismanagement from the kids, a zero-percent mortgage could be an option for parents.<\/p>\n \u201cIt\u2019s not a gift, they actually make it a loan,\u201d he says. \u201cThey go to a lawyer, and they secure the actual property in return for the mortgage \u2014 they don\u2019t make any interest payment required.\u201d<\/p>\n With the Bank of Mom and Dad\u2019s cheque book open, home buyers might be tempted to splurge. But Golombek warns that even if your parents are helping to foot the bill, it\u2019s important to avoid overpaying and becoming house poor.<\/p>\n \u201cEven with parental help, kids can overstretch themselves,\u201d he says. \u201cThey figure, \u2018Oh we\u2019re getting an extra $50,000 or $100,000 towards the house, we\u2019ll just buy a bigger house!\u2019 rather than saying, \u2018Let\u2019s just buy the house that we could have afforded, reduce our mortgage payments and save some money for retirement.\u2019\u201d<\/p>\n Parents have many reasons why they will choose to become financially involved in their child\u2019s first real estate purchase: it\u2019s a cultural expectation, they have free capital to spare, or because they feel it\u2019s their responsibility as a parents do so. However, parents should be cautious about jeopardizing their own financial future for the sake of their kids. A recent RBC poll<\/a> found that 96 percent of parents with adult children between the ages of 18 and 35 have provided financial support in some capacity, but a third of parents are worried about the impact this support is having on their retirement savings. Thirty-three percent of the surveyed parents said they might have to push back their retirement plans entirely.<\/p>\n Before any home buying money is given, Golombek recommends speaking with a certified financial advisor and make sure that the mortgage that is purchased is affordable for everyone. Keehn says this is an important step where cultural factors, the source of the financial support and geographic market conditions can be weighed into the financial plan. Getting the bigger picture on the expenses of homeownership and setting a budget, Keehn explains, can prevent adult children coming back for more money if they\u2019re trapped in an expensive mortgage,<\/p>\n \u201cSome parents are very eager to help their child to get into a home, but are they really setting them up for failure? That\u2019s why that budget is so important,\u201d says Keehn. \u201cIf they can\u2019t afford to make mortgage payments, they can\u2019t afford to pay the insurance, upkeep and everything else that surrounds homeownership \u2026. are they setting them up for failure or to keep coming back for more money?\u201d<\/p>\n When it was back-to-school shopping time and you were picking out a new backpack or a pair of sneakers, you\u2019re parents probably had some control over what you got. Why? Because they were paying for it.<\/p>\n How much parental involvement is at hand when families are buying homes together is entirely individual, but it should be determined as to how much control parents can exercise. Golombek says that independence should be fostered within the adult children. One way to achieve this is to set limitations on the financial support, so parents can have a say on how much they\u2019re spending while still giving most of the decision making power to the homebuyers.<\/p>\n \u201cParents in some cases could put conditions and say, \u2018Look, we\u2019ll support you with this amount, 10 percent, 20 percent of the home, up to our budget. So you should be shopping for homes in this [price] range. We will not support you if you go above this range,\u2019\u201d says Golombek.<\/p>\nTerms and conditions apply<\/h2>\n
<\/a><\/p>\nThink of retirement \u2014 both of your retirements<\/h2>\n
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\n Photo: aag.com<\/a>\/\u00a0Flickr<\/a><\/em><\/p>\nIt\u2019s not personal, just business<\/h2>\n