With house prices on the rise and interest rates remaining historically low, it has become very common for young homebuyers to jump into the market while they can still afford to buy, but require a family member, often a parent, to co-sign or guarantee the mortgage in order to get approval from the bank. There is nothing inherently wrong with guaranteeing or co-signing a mortgage, but you should be aware of some points:
- Even if you are guaranteeing and not co-signing, which means you are not going on title or formally on the registered mortgage, you are just as responsible for the mortgage as the actual owner. If the owner defaults on the mortgage, the bank can skip right over them and go straight after you for any shortfall. Be very aware of this before agreeing to guarantee a mortgage.
- If you co-sign and are on title, this could affect your ability to buy other properties in the future because now, you own an extra house. If you might want to buy a vacation property at some point, you should investigate how owning your child’s house with them could affect that other loan before you go on title.
- Think hard about how you want to take title, if you are required to go on title. If you buy jointly, you could affect your child’s ability to get the first-time buyer land transfer tax rebate, but it can make more sense for estate planning as the house will fall to your child on your death. If you buy in percentage shares, they can get the rebates, but you will need to ensure that your will is up-to-date so that part of your child’s house doesn’t have to get divided with siblings or your spouse.
It can be a great thing to help out a family member in buying a house, but be sure you know what you’re doing before you sign the papers.