Parents are helping their children buy a house
Ah…good old Mom and Dad. They’ve been there to support you through all of your milestones, so it only makes sense that they would be there to support you as you buy your first home, right?
Although, it appears that these days, that kind of support has a whole new meaning.
In some centres in Canada, housing prices are rising at a much faster rate than the average household income. This in part is fueling the emerging phenomenon where parents are helping their children buy a house.
The Bank of Montreal’s 2015 homebuyer’s report brings to light some interesting facts:
- 42 percent of respondents indicated that they intend to lean on parents or other relatives to get money towards their home purchase, which is an increase of 12 percent over last year.
- 40 percent said that they wouldn’t be able to buy a home at all without financial support from their parents or other relatives.
- It’s not just first time buyers either. 42 percent of current homeowners looking to climb their way up to the next rung of the property ladder are getting a boost from the Bank of Mom and Dad.
“When buying a home, it is so important to set a budget and to live well within your means,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada. “Buying a house is a very emotional experience, and it is easy to justify expanding your budget just to close the deal for a house that you want.”
Before you book your appointment with the Bank of Mom and Dad, make sure you consider the following key points for any prospective home buyer:
What can you afford?
How much house can you take on and still have reasonable cash flow? Home ownership is an experience that can provide you with emotional and financial rewards. Being house-poor will provide you with stress that will impact your whole life.
What can you really afford?
So you’ve made a great savings plan and you have your sights set on a home price that you can afford. You might need to back up a little bit and consider the extra costs involved in a home purchase, including moving, lawyers, land transfer costs, renovations, and new-furniture needs. CIBC warns that closing fees alone can cost several thousand dollars or more, depending on property tax regulations in your area. Being able to afford the home’s price tag is not the same as being able to afford the home!
Beware the bidding war
In a number of these cities where the price of housing is necessitating the influx of cash from the Bank of Mom and Dad, bidding wars are commonplace. Rule your house hunt with your head, not your heart. Your property stars will align at some point to get you a great place at a price that you can comfortably afford.
Before you head out on your house hunt, establish a relationship with your lender to help determine what your housing budget should look like, and to get savvy on mortgage terms and responsibilities.
Also understand that a mortgage pre-approval is not an actual mortgage approval. It is a budgeting tool that generally secures an interest rate during your house hunt.
Is home ownership your goal and would like to get your financial house in order to achieve it? If you need guidance on how to get your debts in order, call one of our trained counsellors today at 1-888-294-3130 or use our free debt analysis tool.