How to help your child buy their first home

SPM Financial |
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Mortgage

As parents, you want to help your children achieve their dreams - and for many, that includes buying their first home. With rising housing costs and tougher mortgage requirements, parental support is becoming increasingly important in helping the next generation step onto the property ladder. Here's how you can help make your child's homeownership dreams a reality.

1. Assess if your child is financially ready

Before offering financial help, have an honest conversation with your child about their overall financial situation:

  • Discuss their income, expenses, and existing debts 
  • Review their credit score (available for free through Equifax or TransUnion) 
  • Evaluate their savings habits and emergency fund 
  • Consider if they understand the extra costs of homeownership

According to the Canada Mortgage and Housing Corporation (CMHC), monthly housing costs should not exceed about 39% of gross monthly income. Help your child calculate if they're within this guideline. 

2. Options for helping with the down payment

The down payment is often the biggest hurdle for first-time buyers. Here are ways you can help:

  • Provide a financial gift toward the down payment. Lenders typically require a letter confirming the money is a gift, not a loan. 
  • Offer a family loan with clearly documented terms. Note that lenders will consider this debt when calculating your child's debt service ratios. 
  • Consider purchasing the property together, sharing both ownership and financial responsibility.

Tax tip: Remember that in Canada, there's no gift tax for money given to adult children.

3. Leveraging tax-advantaged accounts for home purchase

There are two government programs that parents can help their children utilize when saving for a first home: the RRSP Home Buyers' Plan (HBP) and the newer First Home Savings Account (FHSA).

RRSP Home Buyers' Plan (HBP)

The RRSP Home Buyers' Plan allows first-time buyers to withdraw up to $35,000 tax-free from their RRSPs to put toward a home purchase. As a parent, you can:

  • Help your child maximize their RRSP contributions before they plan to buy 
  • Gift money specifically for their RRSP, which they can later withdraw through the HBP 
  • Remind them that HBP withdrawals must be repaid to their RRSP over 15 years

Pros and cons: While the HBP offers immediate access to funds with tax benefits, the withdrawn amounts must be repaid over 15 years and missed repayments become taxable income.

First Home Savings Account (FHSA)

The FHSA is specifically designed for first-time home buyers, allowing contributions of up to $8,000 annually with a lifetime limit of $40,000. As a parent, you can:

  • Gift money to your child to maximize their FHSA contributions 
  • Educate them about the combined tax benefits of this dedicated account

Pros and cons: The FHSA offers both tax-deductible contributions and tax-free withdrawals with no repayment required, but has contribution limits that may take several years to reach the maximum benefit.

By understanding both options, you can help your child select the most appropriate program based on their timeline, existing savings, and tax situation.

4. Co-signing on the mortgage

If your child doesn't qualify for a mortgage on their own, consider:

  • Co-signing: You guarantee the mortgage without being on title, taking on responsibility if your child defaults.
  • Co-borrowing: You become a co-owner of the property and are equally responsible for the mortgage.

Important considerations:

  • This affects your debt-to-income ratio and could impact your ability to borrow 
  • It may have implications for your retirement plans 
  • Consider having a legal agreement in place to outline responsibilities

5. Helping with additional costs

Beyond the down payment, first-time homebuyers face numerous other expenses:

  • Home inspection fees (typically $300-$600) 
  • Appraisal fees ($300-$500) 
  • Legal fees ($1,000-$2,000) 
  • Land transfer tax (varies by province) 
  • Title insurance ($250-$400) 
  • Moving expenses 
  • Initial furniture and appliance costs 

Offering to cover some of these costs can significantly reduce your child's financial burden.

6. Exploring government programs together

Help your child navigate available government programs:

  • First-Time Home Buyer Incentive: The government contributes 5-10% of the home's purchase price through a shared equity mortgage.
  • First-Time Home Buyers' Tax Credit: A $10,000 non-refundable tax credit providing up to $1,500 in tax relief.

GST/HST New Housing Rebate: Available for newly built homes or substantially renovated properties.

7. Supporting the house-hunting process

  • Beyond financial help, offer practical support: 
  • Help research neighborhoods and properties 
  • Attend viewings to provide an objective perspective 
  • Connect them with trusted professionals (financial advisors, real estate agents, mortgage brokers, inspectors) 
  • Share your own homebuying and home owning experiences and lessons learned

8. Contributing to home protection

Once your child has purchased their home, you might consider helping with:

  • Home insurance premiums for the first year 
  • Personal life insurance to cover the mortgage 
  • Setting up an emergency fund for unexpected repairs 
  • Contributing to necessary home improvements or maintenance 

9. Setting healthy boundaries

  • When helping your child financially, it's important to: 
  • Clearly define whether your contribution is a gift or loan 
  • Document any financial arrangements properly 
  • Discuss expectations about involvement in decision-making 
  • Respect your child's independence and choices 
  • Consider consulting a financial advisor about the impact on your own finances

Outside of helping your children achieve their home ownership goals, there also might be some tax benefits and opportunities for you.

  • Consider using your Tax-Free Savings Account (TFSA) to grow funds tax-free before gifting 
  • If you're co-owning as an investment property, explore potential tax deductions 
  • Consult a financial advisors and/or tax professional to understand the implications and opportunities for your situation

The goal of helping your child buy their first home should be to give them a solid foundation while empowering them to become financially independent. Providing education and guidance alongside financial assistance can help ensure their long-term success as homeowners and as people.

Remember, the right approach depends on your unique family situation, financial circumstances, and relationship dynamics. What works for one family may not work for another.

If you’re looking to help your child achieve their homeownership dreams, contact us today. We can offer personalized guidance on how to support your child's home purchase while protecting your own financial well-being.