Tips for Parents: How to Protect Your Down Payment Gift
Canada's home prices have soared in recent years, not to mention the overall cost of living. Many younger people are having trouble saving enough money for a down payment on their first home, and often end up having to turn to their parents for help.
According to a recent Royal LePage demographic survey, 48% of Canadians aged 25 to 35 currently own their home, and 25% of them purchased a property during the pandemic.
“The pandemic provided an unexpected prize for young Canadians – a path to home ownership,” said Phil Soper, President and CEO of Royal LePage. “Mortgage rates fell to historically low levels and the competition for entry-level housing lessened. Many investors sought to sell off properties as traditional renter groups, such as foreign students, new immigrants and short-term renters, disappeared behind closed borders.” He continued: “In many ways, the pandemic has sucked the joy out of our normally kinetic young adults' lives. No dining out, no concerts with friends or winter escapes to the sunny south. Even retail therapy has lost its lustre when no one will see those new shoes on the next Zoom call. The silver lining is in soaring savings; unspent money that is finding its way into real estate investments.”
However, no matter how much young, aspiring homeowners have managed to save, it’s often not enough, and therefore many are relying on substantial financial help from parents in the form of a gifted down payment. The latest stats from Mortgage Professionals Canada, the national association representing Canada's mortgage industry, showed down payment gifts from parents have doubled since the year 2000.
If you are considering helping one or more of your children purchase their first home, we encourage you to keep reading. If your child is looking to buy a house independently, things tend to be much more straightforward. However, if your child is purchasing a home with their life partner, there are several important things to consider.
If the happy couple goes on to live a long and fulfilling life together, there's nothing to worry about. But what if the relationship goes sour? What becomes of your generous financial contribution?
Nobody likes to think about divorce, but according to current figures, Canada's divorce rate is around 40%.
In the case of a divorce or separation, family law in Quebec states that the home in which a couple lives is treated differently than all other assets. It cannot be sold without the permission of both parties. In a perfect scenario, the value of the home, minus any mortgage, is split 50-50. That means any gift previously given to the couple that constitutes part of the home's equity will also be split 50-50.
It’s always better to have a plan in place, so that the money you have given your child for their home doesn’t end up being fought over in divorce court.
A good way to protect your money is to encourage your child to sign a marriage contract, also known as a prenuptial. Although it can be a sensitive subject, divorces where there is a marriage contract are the simplest to resolve because it is a legal document that records all important decisions concerning the matrimonial regime, gifts, and future intentions.
If your children are already married, and then decide to buy a home with your financial assistance, a marriage contract can be signed after a couple has tied the knot.
Suppose the parties are living common-law and not married. In that case, they can use a notarized cohabitation agreement to outline how property will be divided in the case of a break-up.
If one of your children is thinking of purchasing their first home, and could use some advice or guidance, don't hesitate to contact Team Broady at 514-613-2988 or firstname.lastname@example.org.