Buying with a Parent
April 18, 2021 Buying
First-time homebuyers are having a tough time these days. With rising home prices, it often takes many years to accumulate a sufficient down payment to purchase a traditional starter home such as a townhome or condo. I’m seeing many more first-time homebuyers looking to purchase with the help of a parent. This means that in some cases, a parent will contribute to their child’s down payment or co-sign a mortgage with them.
There are some advantages to this purchasing strategy to consider. For instance, with the help of a parent, one can supplement their down payment upfront, enter the real estate market, and potentially lower their mortgage and related costs. Alternatively, if a parent agrees to co-sign a mortgage, a person who would otherwise face difficulties in being approved for a mortgage will be able to so more easily. Finally, it is also possible for a parent to do a combination of the above-mentioned options which can provide even more assistance to a first-time buyer.
However, a parent’s contribution is a large undertaking that is not to be taken lightly.
Where a parent is assisting with a down payment, they may want to protect their contribution by means of a separate legal agreement. In that case, a lawyer can draft a contract laying out the specifics of the contribution and establishing how and when the parent will be reimbursed.
Where a parent co-signs the mortgage, other considerations also become relevant. For instance, the parent becomes equally liable for the mortgage and the scheduled payments. What are the consequences if mortgage payments are not made? What percentage of ownership should the parent hold in the property? When can the parent be removed from the mortgage and what are the costs involved? These questions should be further discussed to determine what is best for everyone involved.
In the end, buying with a parent can be an interesting option. To minimize possible problems or conflicts in the future, clarity is key. You should strongly consider speaking with professionals such as a lawyer, a mortgage broker, and an accountant at an early stage of the purchasing process to understand the implications of buying a home this way.
Reposted with permission from Mathieu Glémet, Ottawa real estate lawyer. The content of this post is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice.