How to help your kids buy their First Presale Condo?
Presale condos are in high demand.
As a parent, you want your children to be happy and financially secure. One way to help them achieve this is to buy them a home.
Saving for a down payment on a presale property or any property for that matter is no easy feat, especially if you’re a millennial. In today’s market, young first-time homebuyers may find themselves tangled in a web of student debt, rising home prices, and stringent mortgage requirements.
Presale condos are in high demand among young individuals who want to live near their work or school and don’t have enough money for a down payment on a traditional condo or house. You can help your adult child buy one of these units by buying it for them, paying off the mortgage or providing funds that they can use as a down payment (or both).
In this blog we have discussed the 3 most common options that parents use to help their children buy their first pre construction property.
3 Most Common Options:
Option #1: Co Signing a Mortgage with Parents for Your Presale Condo
The simplest way you can help your kids is by co-signing the mortgage, or signing your name alongside your kids on the mortgage documents, especially if they have low income, says Realtor.com. Co-signing allows your parents to qualify for more favorable terms than they would otherwise receive as first-time buyers with little income history or credit history.
Pros of Co-signing a Mortgage
- It’s easier to get approved for mortgages when there is more than one person applying for the loan
- Assets for estate planning can be easily transferred.
- If you’re able to get access with the help of your parents to a mortgage at a lower rate or with better terms, then it’s possible that you can save money on interest payments over the life of the loan.
Cons of Co-signing a Mortgage
- Parents are on the hook for the loan if children can’t make payments
- If a parent co-signs for a mortgage and the child falls behind on payments, then the parent’s credit rating is hurt just as much as the child’s.
- Finally, a parent who co-signs for—or gives money to—a married child who then divorces could get entangled in a messy division of assets, and could lose some or all of the investment to the child’s ex-spouse.
Option #2: Down Payment Assistance from Parents for Your Presale Condo
Gifting your child the money they need to help buy a home could be a great way to give them the jump-start they need. It can also be simpler and not have strings attached, as a loan agreement does. By helping your child reach the typical 20% down payment or whatever amount a parent is comfortable with, can help them tremendously on saving on Canada Mortgage and Housing Corporation (CMHC) fees and interest costs in the long term.
How much money can I receive as a gift?
As of 2022, parents can contribute a collective $32,000 per child to help with a down payment — anything after that would incur the gift tax. Other family members have a $16,000 lending limit before they, too, have to pay taxes.
There might be other tax implications and other do’s and dont’s of a down payment gift, so please get in touch with Ravi Bhindi’s team who has a team of mortgage reps that have helped a lot of Ipresale clients in this situation.
Option #3: Get a Loan from Parents for your First Pre-construction Investment
If your parents offer to help, and are not convinced with option #1 & #2, consider borrowing money from them at a low interest rate.
This can be a win-win situation. You get a loan and pay less interest than if you would have got a mortgage from a reputable financial institution. Your parents earn a return that could be more than a savings account or term deposit. Payment terms can also be more flexible and arranged to suit your particular situation.
Once your finances and terms of loans are settled with your parents, you still have lots to do. You’ll need to find a realtor who specializes in finding presales for your financial situation. You’ll have to pick a right unit with the right developer and most importantly at the RIGHT PRICE.
Ravi Bhindi has helped a lot of young individuals and couples who have been in this situation and his 18+ years of experience in presale industry can help you determine which project will make you money in the long term.
Presale Tip: You must declare any interest you earn on your tax return
The Bottom Line
Each of these options has its own pros and cons – the solution that’s best for you depends on your particular situation. Advice from a presale expert that has experienced mortgage reps and accountants can help tremendously.
Their recommendations may even help you avoid expensive mistakes and they’ll get a lot of satisfaction from being able to help.