Your Fort McMurray Mortgage Broker Jodi Whalen to help show possibilities to help get home ownership in Fort McMurray that much quicker. One of the interesting shifts in Fort McMurray real estate has been the increasing number of parents helping their children buy homes, and they aren’t selling their own home to their children. Here are a few ways parents are helping their children move out of the parents’ house and into their own Fort McMurray home.
The Gift of a Down Payment
One of the most common ways parents help a child afford a home in Fort McMurray is to give them a cash gift to use toward a down payment.
- No tax implications.
- You give what you can afford when you afford it.
- When multiplied by gifts by others, it could be a sizable chunk of money.
- The lifetime impact is far greater than spending a similar amount on the wedding.
- They might spend the money on something else. Whether that is paying off credit card debt or a trip to Aruba depends on them.
- It might not be enough for them to buy a home.
- If they get a divorce, it may get split between your child and their soon-to-be-ex.
Bank of Mom and Dad
This typically takes the form of a loan from Mom and Dad to buy a house. It could be a loan for the down payment or a loan for the entire property in Fort McMurray.
- Parents can set up generous terms, including no interest loans and very flexible payment terms.
- Parents can in theory take out a loan against their own home and lend money to an adult child at mutually favorable rates.
- Sell the family home to your kids and they essentially pay you back over time.
- If you forgive the loan, tax bills and legal issues arise.
- If you need the money and they don’t pay you, you have a new reason to fight over money over the holidays.
- Don’t forget the legal paperwork. And if you neglect to have the right paperwork, there will be a mess on your hands whether there is a death, divorce, bankruptcy or another lien put on the property.
- Lenders are scrutinizing borrowers more often to find private loans to get around down payment minimums, and this could hurt your child’s ability to get a mortgage in their own name.
- If there’s a death or divorce, the property and the mortgage for it are involved.
- Be careful that your help doesn’t end up with an adult child buying more house than they can afford. Some people would be better off buying a cheaper starter home than the larger one they qualify for with help.
“Here’s Our House”
There are families that try to solve the housing shortage by giving the young adults the family home while parents move out and somewhere else.
- The house stays in the family. For some, that’s reason enough to go with this strategy.
- The young adults don’t have to move.
- If the parents arrange for their kids to pay a mortgage payment while the parents move somewhere cheaper or into assisted living, they receive cash flow similar to a reverse mortgage but they’re solving the family housing problem, too.
- Capital gains taxes likely apply. Other taxes and legal fees may be required.
- If you’re giving them a rental property, very high taxes are involved. And paperwork.
- Your kids may not want to live in the family house.
- They may feel trapped there if they accept the house and then have trouble finding work or the schools go downhill. Your gift now becomes a handicap.
“Here’s Our House – Together”
This could take the form of building a secondary home on the property like a detached home in Fort McMurray or converting the basement into a mortgage helper in Fort McMurray.
- It increases the value of the property long-term.
- You gain flexibility. Whether the couple moves into the new cottage or Mom does is up to them.
- If the person or family that moved into the Fort McMurray rental helper moves out, the rental unit could be rented out to someone else as a source of income.
- You could see your grandkids every day.
- You may have essentially set up in home care for yourself as your health declines.
- Property taxes are likely going to go up because the property value went up.
- Bigger house, bigger utility bills.
- You may or may not be able to take out a mortgage on the current home to pay for a project like this, though many lenders support the effort.
- Do you really want to be a landlord?
- Do you really want your adult children and their children living in your basement or have to live in a cottage?
- What if your relatives decide they don’t want to help take care of you like cleaning your apartment? You’ve just guaranteed family fights … and you all have equity in the house.
- If there is a lawsuit or divorce, now two generations (or more) may have to move … and they can’t take refuge in the others’ house.
- Talk to an attorney on how this could impact your will and probate. You don’t want another heir being able to force sale of the house they don’t live in after they inherit Mom’s share upon her death.
“Where Do We Sign? And Us Too …”
Cosigning is a common way for parents to help an adult child buy a house in Fort McMurray. A cosigner improves the creditworthiness of the borrower because they’re a legal backstop for the deal.
- It could help your adult child get a better interest rate on a loan than they’d otherwise qualify for.
- It doesn’t cost you anything as long as your child pays the payments.
- You can do this in conjunction with cash gifts to your child without any tax implications. Yes, you could gift them $10,000 and then co-sign for a $200,000 loan.
- There’s very little legal paperwork beyond co-signing the mortgage.
- If your child’s credit improves, they could probably seek a new mortgage in their own name and get the parent’s name off the mortgage.
- Your child could end up taking out a larger loan than they could comfortably manage because the lenders are willing to lend them more. They end up house poor due to your “generosity”.
- If your kid doesn’t pay the mortgage, you’re on the hook for it, regardless of your current ability to pay a mortgage for a home you’re not living in.
- If they’re late on payments, your credit gets dinged.
- By rushing to sign up with the mortgage lender, you may overlook other lenders’ better terms or rates. Consult with a Fort McMurray Mortgage Broker to find out all of your options.