Helping your child buy a home

With steep home prices, strict mortgage regulations and a high cost of living, today’s first-time home buyers face a major financial challenge. It’s no wonder so many turn to their parents for assistance.

According to the Canada Mortgage and Housing Corporation, three in 10 Canadian home buyers receive a gift to help purchase their home.¹ By contributing to your child’s down payment, you may be able to help them purchase a home sooner—perhaps years earlier. Also, your child is more likely to choose a home they want, without compromising.

Ways to help

Here are four common ways to contribute toward a down payment.

Funding an FHSA. Your child may not have the financial resources to contribute to a First Home Savings Account (FHSA), but you can gift funds to your child that they can contribute to their account. The maximum annual contribution is $8,000, and if you want to help out more with the down payment, you could also gift your child funds to contribute to their Tax-Free Savings Account (TFSA).

When you help out in advance, your gift has the opportunity to grow tax-free, and your child benefits from the FHSA tax deduction.

Gifting a lump sum. When you give your child a large gift now, you’re able to witness the difference you make—which isn’t the case when you leave them an inheritance in your will. Note that lenders typically require you to submit a mortgage gift letter to confirm your contribution toward the down payment is an outright gift, not a loan.

If you are considering this method, you can consult us to assess how a gift might affect your financial situation and long-term goals. We can look at any tax consequences of withdrawals and help you determine a gift amount that suits your wealth plan.

Providing a loan. If you’re uncomfortable gifting a lump sum, you may consider lending the amount to your child. In this case, you would prepare an agreement that documents the loan amount, repayment terms, interest rate and any other conditions—for your own benefit and to meet the lender’s requirements.

Co-signing the mortgage. Your child, or your child and their spouse, may be capable of making their mortgage payments but be held back from qualifying for a mortgage due to a credit, debt or other issue. To help out, you can co-sign their mortgage. However, you will be liable to cover any payments your child is unable to make, and co-signing may limit your ability to borrow in the future.

If you have more than one child

Deciding whether to help a child buy a home takes more thought if you have other children. When you help only one child, you risk making the others resentful. One solution is to gift each child an equal sum when they decide to purchase their first home.

If only one child needs financial help, you could update your will to reduce their inheritance by the amount of the gift. Or you could help out with a loan, instead of a cash gift. Whichever solution you choose, it’s important to communicate your plan to all of your children.

Using an FHSA

You can contribute up to $8,000 a year to a First Home Savings Account (FHSA), to a maximum of $40,000. Your contributions are tax-deductible, your investments grow tax-free and your withdrawals are tax-free.

Those are the basics, but here are some helpful tips and strategies.

Using TFSA funds. You can withdraw funds from your Tax-Free Savings Account (TFSA), contribute the funds to your FHSA and receive a tax deduction in the amount of the contribution.

Deferring deductions. If you’re a student or just starting out in your career, you may be in a lower tax bracket and not save a significant amount of tax from the tax deduction. In this case, you can carry forward the deduction to any future year when you may be able to save more tax.

Leveraging your refund. You can take the amount of your FHSA tax refund or tax savings and contribute this amount to your FHSA, using the refund to grow your account. Alternatively, you can contribute the amount to your TFSA and eventually apply these funds toward your down payment.

 

¹ Canada Mortgage and Housing Corporation, “Mortgage Consumer Survey,” 2024.