Around a fifth of first time home buyers had help from family, though it takes a variety of forms. Let’s look at a few of the more common reasons why parents are helping their adult children buy homes in Grande Prairie.
“Get Out of My House.”
Around a third of Millennials (counting those up to age 35) still live at home with their parents. Their parents often look at the cash toward a new home purchase in Grande Prairie as a way to get their adult children out of their home, whether it is to jump start their independent existence or to allow the parents to be able to sell their home depends on the family. By giving someone money toward the cost of a new home in Grande Prairie, it could also motivate them to move out of the basement and in with their partner, spurring both household and family formation.
“If We Don’t Act Now, You’ll Never Be Able to Afford a House.”
There are parents who give money, cosign for loans and take other steps to help adult children buy a house in Grande Prairie out of fear they won’t otherwise be able to secure one. At the worst extreme are parents who buy houses in the names of their minor children; they typically rent out the properties to tenants to pay the bills until their children grow up and can choose to take over the property in Grande Prairie. The risks the parents are taking include tenants wearing out the house and their children not wanting to have that house. The more typical steps include cosigning for loans or Mortgages in Grande Prairie because the adult child can’t qualify for a mortgage in Grande Prairie for the house they want and cash toward the down payment and/or closing costs. Some parents consider this a form of living inheritance, handing cash out while alive to benefit their children.
“Here’s Your Inheritance.”
Cash gifts to adult children toward the purchase of a new home in Grande Prairie are essentially without tax implications. If you have multiple children, this could be a decent way to decrease the size of your estate while you’re still alive. And unlike a sudden cash windfall upon your death someone may waste, the money going toward a home purchase in Grande Prairie is very difficult to blow. At worst, they’ll tap the home equity in Grande Prairie to pay off credit card debt or renovate the house later. Gifting money certainly avoids the legal entanglements that co-owning a house or co-signing on a mortgage in Grande Prairie brings. If they default on the mortgage, it doesn’t hurt your credit or add to your stress.
Cash is a far better than trying to transfer ownership of an existing home. Gifting money to someone to use for the purchase of a home in Grande Prairie or elsewhere avoids the taxes that you must deal with when gifting a piece of property, whether you transfer it in pieces over time or all at once. You’ll have to pay a 50% capital gains tax on the increase of any property’s value since it was originally purchased. (This is why many parents were buying homes for future occupancy by their child in the child’s name instead of their own.)
“This Gift Will Pay Off in the Future.”
According to a recent mortgage industry survey, about half of the new home buyers that hit the 20% (or higher) down payment threshold received financial gifts from parents compared to a much lower percentage of those who didn’t hit the 20% down payment mark. A number of gift givers are willing to make these gifts because it can literally pay off in the future. A larger down payment could result in a lower mortgage interest rate in Grande Prairie. That saves the new home owners money. The larger down payment might result in lower closing costs or mortgage insurance, though not always. If young adults don’t have to borrow against their RRSP to buy a home, they don’t end up losing out on stock market growth because they’re paying their loan back. It certainly avoids the risk that the young adult has to pay taxes on the RRSP loan because they don’t pay it all back in time. The penalty for missing the repayment (1/15 of the total amount withdrawn) is income tax on the amount you didn’t pay back. And you have to make the annual repayment even if you’re in bankruptcy.
Consult with your Grande Prairie Mortgage Broker today to discover the best option for purchasing a home today!!