Helping Your Kids Buy Their First Home: What Parents Should Know

As parents, when your children are ready to step into homeownership, there are several financial and legal considerations to understand. Below are five key areas to focus on.

1. Down Payment

In Canada, the size of the down payment determines whether a mortgage is insured or conventional (uninsured):

• Conventional Mortgage: Requires a minimum 20% down payment. No mortgage insurance premiums apply, and approval is based solely on the lender’s decision. Interest rates are typically slightly higher than insured mortgages, but the absence of insurance costs can make this option more attractive long term.
• Insured Mortgage: Applies when the down payment is under 20%. Mortgage default insurance is required, and premiums vary based on the down payment percentage. The smaller the down payment, the higher the premium. Approval also requires sign-off from one of the three national insurers (CMHC, Sagen, or Canada Guaranty).

Funding the Down Payment:

The down payment must come from non-borrowed sources (savings, RRSP withdrawal, FHSA, or parental contribution). If parents provide funds, most lenders require a signed gift letter confirming that the money is a gift, not a loan. If personal savings are limited, a Home Equity Line of Credit (HELOC) can also be used.

2. Ownership Structure

How title is registered depends on your child’s income, credit, and whether you participate financially.

• Independent Ownership: If your child qualifies on their own, the property should be in their name. They benefit fully from first-time buyer programs such as:
  • Land Transfer Tax rebates
  • Access to RRSP Home Buyer’s Plan withdrawals
  • Use of the First Home Savings Account (FHSA)
• Guarantor: If your child’s income is close to qualifying but not sufficient, parents may act as guarantors. You’re not listed on title, but your income helps the child qualify.
• Co-Applicant/Co-Signer: If the child cannot qualify alone, parents may co-sign the mortgage. In this case, both parents and child must appear on title. Ownership can be registered in two ways:

• 1. Joint Tenancy – Equal ownership shares with automatic transfer to the surviving owner if one passes away. However, first-time buyer rebates apply only to the child’s share of ownership.
  2. Tenants in Common – Ownership shares are divided unevenly (e.g., parent 1%, child 99%). This maximizes the child’s first-time buyer rebates, but can complicate estate planning if something happens to the parent.

In some cases, parents may purchase property under their own name for a minor child, with the intention to transfer ownership once the child reaches adulthood. This should be arranged with legal advice and often involves a trust agreement.

3. Mortgage Qualification

Mortgage qualification is based on combined income and liabilities of all applicants. This means parents’ existing mortgages, car loans, and credit card balances are factored into the calculation along with the child’s debts (e.g., student loans).

Tips to Improve Qualification:

• Restructure debt to reduce monthly obligations (e.g., switch from accelerated to standard mortgage payments).
• Pay off smaller high-payment loans such as cars or personal lines of credit.
• Speak to a mortgage broker early for a full assessment and strategy.

4. Fees and Costs

• Broker Fees: Most mortgage brokers are paid by lenders, so clients usually pay nothing. Fees may only apply in complex cases.
• Mortgage Insurance Premiums: For insured mortgages, premiums range from 2.8%–4% of the mortgage amount depending on the down payment, plus 8% PST (payable at closing).
• Closing Costs: Include lawyer fees, disbursements, and land transfer tax. Insurers require proof of 1.5% of the purchase price available for closing costs.
• Land Transfer Tax: Varies by province and municipality. In Toronto, both provincial and municipal taxes apply. First-time buyers may qualify for partial rebates.

5. Property Use

• Primary Residence: To access first-time buyer benefits (RRSP withdrawal, FHSA, land transfer tax rebate, and insured mortgage options), the property must be your child’s primary residence.
• Rental Property: If the home will be rented, a minimum 20% down payment is required, and mortgage rates are usually 0.25% higher. Rental income may need to be reported and split according to ownership structure, so it’s best to consult an accountant.

Final Thoughts

Helping your children purchase their first home is a major financial decision that involves careful planning around down payments, ownership structure, qualification, fees, and intended use of the property. Parents should always consult a mortgage broker for financing options and a real estate lawyer for ownership and title planning. With the right structure, you can help set your children up for long-term financial stability.