Can't afford a home, get richer parents (Options to Afford a Home)

Thursday Aug 26th, 2021


Are home prices getting ridiculous? Are you afraid you will never be able to own a home? Maybe it is time to find richer parents?  Just kidding.,.


One of the biggest hurdles to homeownership is affording the down payment required.  On average you can expect to need 10% at a minimum of the purchase price of a home. On a $700,000 property that is $70,000. In addition to closing costs which could be another 2-3% so another $14,000-$21,000, that is a lot of money.  


Today we are going to be talking about alternative options to afford homes.


Gifted Down Payment:

One way to afford a home is to use a gifted down payment.    This method is very popular when parents are assisting their children when purchasing a home.  Some lenders will allow some if not all of your downpayment to come from a gift from an immediate family member.  Because it is a gift, you cannot be obligated to pay it back.  The lender will require that the donor sign a letter stating that it is a gift and do not intend to receive it back. The letter will also state your relationship with the donor. 

I am making this sound simple BUT there are many rules and criteria for using a gifted down payment so make sure to speak to an unbiased mortgage professional before starting your home search.   Disclose the fact you will be using a gifted down payment immediately so that your mortgage professional can help meet the lenders and government requirements.  This is especially true if your gift comes from overseas or internationally because it adds a layer of complexity when complying with Anti Money Laundering laws. 


Pooling Money

Purchasing a home with family members or friends is becoming more and more popular as home prices continue to climb.  This is called Co-Ownership and here are some things to consider

You can co-own a home as joint tenants (similar to a married couple buying a home together) or tenants-in-common. (Usually, the term tenant describes a person who rents or leases property. However, for an estate owned by more than one person, a tenant is a co-owner.). With Joint Tenancy, if one owner dies their share of the home goes to the other owner(s). In a tenants-in-common, each tenant owns a portion of the property, which becomes part of their estate when they die. Whether registering as joint tenants or tenants-in-common, all owners on the title will need to sign any mortgage, and there can only be one lender.  Lenders consider every co-owner 100 percent liable for the mortgage. So if one buyer defaults or forgets to make a payment, everyone's credit scores will be negatively impacted. 

If you are considering co-ownership, always talk to a mortgage professional and a lawyer before making a purchase. There are many things to consider such as if one party wants to sell their own or if one party loses their job.

Renting out a portion of your primary residence
Up to 20% of Canadians rent a portion of their primary residence and use the rental income to apply to their mortgages. There are legal and logistical issues to consider when thinking of doing this.  Firstly you want to be sure that the space you are renting complies with municipal bylaws and fire laws. There are insurance considerations and you want to be sure your policy covers liability to ensure that you and your tenants are properly covered.  Make sure to consult with a tax specialist so that you can take advantage of any tax laws.

Using an Inheritance

If you plan on using the money you inherited as a downpayment to purchase a home, please make sure you disclose this to your mortgage professional.  Some lenders will require that you have had the money in your account for more than 90 days before your purchase to comply with the Anti-Money Laundering Act.




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