{"id":7488,"date":"2017-11-24T15:15:01","date_gmt":"2017-11-24T23:15:01","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=7488"},"modified":"2017-11-09T09:56:14","modified_gmt":"2017-11-09T17:56:14","slug":"down-payment-gifts-on-the-rise","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2017\/11\/down-payment-gifts-on-the-rise\/","title":{"rendered":"Down Payment Gifts on the Rise"},"content":{"rendered":"<p style=\"text-align: justify;\">High real estate prices and new mortgage rules designed to clamp down on risky lending have made it harder than ever for first-time buyers to own a home. So it\u2019s not surprising to hear that cash-strapped millennials are accepting increasing amounts of financial help from parents in the form of \u201cgifted\u201d down payments.<\/p>\n<p style=\"text-align: justify;\">People generally receive inheritances later in life, when they\u2019re already financially established. But boomers, particularly those living in major urban centres, are increasingly using gifts to help their children climb on to the property ladder. Eighteen per cent of first-time home buyers say they received money for a down payment from a family member, according to a survey conducted by the Canada Mortgage and Housing Corporation (CMHC) this summer.<\/p>\n<p style=\"text-align: justify;\"><strong>Down Payment Gifts on the Rise<\/strong><\/p>\n<p style=\"text-align: justify;\">But, while likely grateful, they weren\u2019t necessarily happy with the arrangement. \u201cFirst-time buyers who received a gift from family as part of their down payment were less comfortable than others with their current level of mortgage debt,\u201d the agency reports \u2014 probably due to the fact that \u201cthey were less likely to have other assets to supplement their needs should they run into financial trouble.\u201d<\/p>\n<p style=\"text-align: justify;\">And that was before they learned that Ottawa now plans to move forward with regulations establishing a new minimum mortgage qualifying rate, or \u201cstress test,\u201d for even well-heeled buyers able to come up with a down payment of more than 20 per cent of a home\u2019s value. Previously, limits set by the Office of the Superintendent of Financial Institutions (OSFI) only applied to insured mortgages under that 20% threshold.<\/p>\n<p style=\"text-align: justify;\">The new stress test \u2014 designed to predict whether homeowners could handle their debt if interest rates or their personal finance situation were to change \u2014 means borrowers would be assessed at either the five-year average posted rate, or 2% higher than their actual mortgage rate \u2014 whichever is higher. This means many first-time buyers may be looking for even more help from the \u201cbank of mom and dad\u201d since this increased hurdle effectively reduces most home buyers\u2019 affordability significantly.<\/p>\n<p style=\"text-align: justify;\"><strong>What Young Home Buyers Need to Know<\/strong><\/p>\n<p style=\"text-align: justify;\">The first rule of accepting a gifted down payment is that it has to come from an immediate relative with no strings attached. More importantly, it\u2019s also supposed to be a bequest that never has to be repaid, something that the family member gifting the money has to confirm in writing.<\/p>\n<p style=\"text-align: justify;\">This is not about parents simplify promising to step up and help. Gift letters need to outline the amount of the gift, the specific recipient, the relative\u2019s relationship to that recipient, and the fact that the gift isn\u2019t subject to any repayment schedule. The money will be expected to be deposited into the buyer\u2019s account and should exactly match the amount shown on the gift letter. It\u2019s not unusual for lenders to verify bank records to confirm the source and amount of funds being transferred.<\/p>\n<p style=\"text-align: justify;\"><strong>Other Ways Parents Might Help<\/strong><\/p>\n<p style=\"text-align: justify;\">Rather than providing an outright gift, some parents or relatives may prefer to provide the money for a down payment by means of a loan. But lenders frown on this practice since it actually increases borrowers\u2019 loan-to-income ratios, making them a poorer risk. This is becoming even more of an issue since OSFI is now insisting that lenders enhance their loan-to-value measurement and employ more stringent LTV ratio limits that reflect the underlying risk of high-flying markets like Vancouver and Toronto.<\/p>\n<p style=\"text-align: justify;\">Co-signing the mortgage is another option. The trouble here is that co-signers are responsible for the full mortgage balance owing. Well-meaning parents may think they\u2019re just helping the kids out, but as co-signer they\u2019re responsible for everything, including any condo fees, insurance and taxes.<\/p>\n<p style=\"text-align: justify;\">Another caveat for gift-giving relatives: If a couple is buying a home jointly, you may want to specify in the letter that the gift is intended for the use of your child or grandchild and support this with some sort of pre-nuptial agreement. Otherwise, if the relationship fails, it may be considered joint property and split evenly between the two parties \u2013 likely not what you originally had in mind.<\/p>\n<p><a href=\"https:\/\/www.zoocasa.com\/blog\/down-payment-gifts-what-new-buyers-need-to-know\/\" target=\"_blank\" rel=\"noopener\">Down Payment Gifts : What New Buyers Need to Know<\/a> by Gordon Powers | Zoocasa<\/p>\n","protected":false},"excerpt":{"rendered":"<p>High real estate prices and new mortgage rules designed to clamp down on risky lending have made it harder than ever for first-time buyers to own a home. So it\u2019s &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2017\/11\/down-payment-gifts-on-the-rise\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-7488","post","type-post","status-publish","format-standard","hentry","category-mortgage"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Down Payment Gifts on the Rise &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2017\/11\/down-payment-gifts-on-the-rise\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Down Payment Gifts on the Rise &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"High real estate prices and new mortgage rules designed to clamp down on risky lending have made it harder than ever for first-time buyers to own a home. 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