Many parents want to help their children buy their first home, but are unsure how to proceed. Put yourself in the following situation. Your daughter has finished university and is employed in a full time career. She wants to purchase a home but has no down payment and does not qualify for a mortgage. You have some funds to help her but you do not want to gift this money since you may need it for your retirement.
Most banks will require that you purchase the condo with your child. This means that you will be a joint owner and will be jointly liable for the mortgage. In a joint ownership the value of the property is split equally between the two parties. Together, you and your child are entitled to profits and are responsible for losses from the property. Both joint owners must consent before the property can be sold or remortgaged. If one of the joint owners dies, the remaining owner is deemed to own 100 percent of the property. Joint liability for the mortgage means that both owners are liable to the bank for the mortgage and if one owner is unable or refuses to pay, then the remaining owner must pay the full amount. Any default on the mortgage will affect the credit rating of both owners.
Most parents proceed with owning property jointly with their children but have discussions with their children about who is responsible for the mortgage and how the loan must be paid back. For example, you may agree that your daughter has the right to keep 100 percent of the profits from the property and is responsible for 100 percent of the losses. In this case she would be totally responsible for the mortgage, condo fees, and taxes, and she could sell or remortgage the property whenever she wants, and at some point she must pay you back for the down payment you advanced.
It is a mistake to believe that the verbal agreement you have with your daughter is sufficient. Cases from across Canada exhibit misunderstandings and broken relationships that can occur if you do not document your verbal agreement. Have you discussed what will happen if one party dies before the money is paid back? Have you set a time limit on how long your daughter has to pay the money back? What you and your daughter say to each other may not be fully discussed or understood. Over time memory of what was said will fade.
In order to prevent conflict, it is important to make a written agreement with your daughter before signing a mortgage. A trust agreement will outline the terms of your agreement and will prevent unwanted conflicts in the future.