Tips for Helping Your Child or Relative Buy Their First House

From 2003 to 2018, Canada saw an increase in home and property prices of up to 337% in some markets. In March 2017, the cost of owning a home in the Greater Toronto Area had grown 33% in only one year. Since 2017, the housing market has only continued to grow. 

While a hot housing market is great for current owners, the continuation of our housing crises alongside increasing interest rates has made the dream of buying your first home exceptionally hard for many. 

Many are entering the housing market for the first time with the aid of their loved ones, in many cases either a parent or relative. This trend has become so dominant that a recent poll commissioned by the Ontario Real Estate Association (OREA) and conducted by Abacus Data found that around 40% of parents of young Ontario homeowners helped children with purchases. 

While this investment can change a person's life, it also comes with potential risks, especially regarding a child who has a partner. To safeguard your investment, legal aspects should be defined to ensure a lack of ambiguity if the partnered relationship breaks down. 

Loans Vs Gifts

The first step you should take in this process is determining whether the money provided is a gift or a loan. 

The large difference is that a gift does not expect repayment. In the case of a loan, the terms should be defined up-front and clearly in a legal document. This should be done before the money is transferred. If your aim is to limit the benefit from the child's spouse or partner, you should consider ensuring the transfer is a loan. 

While a loan will help you limit benefits, it is important to also ensure the loan agreement is set up, as courts are reluctant to identify money provided by parents or relatives as a loan unless there is proof such as a loan document or promissory. A promissory note provides the basis for which the money is being given and any conditions relating to repayment. It's important to note that all parties sign the documents or that the partner will not be liable should the partnership break up.

On top of the note, you may also formally register as a mortgagee/creditor on the property. By registering, you will remove all uncertainty regarding the loan, but it could affect future funding and credit scores as formalized debt. 

Domestic Agreement

While the above documents will help you, it's beneficial for your child to also enter into a domestic or marriage agreement. The agreement, once signed, allows your child to establish with their spouse or partner the exact way to divide assets upon dissolution of the relationship. 

While the above may sound complex, our team of Greater Toronto Area legal professionals can help. By working with our team and following the above steps, you can ensure that your investment is safe and that your child's future home is adequately protected. 

Interested in learning more? Reach out today.