For many young Canadians, breaking into the housing market isn’t just difficult — it can feel nearly impossible. Soaring home prices and strict mortgage qualification rules have pushed ownership further out of reach. That’s why more parents are stepping in to help.
That generosity, however, comes with important financial and legal considerations as well as potential risks. In this article, we’ll explore the key strategies for helping your adult children buy a home, while ensuring that your generosity doesn’t jeopardize your financial future.
There are three primary strategies for parents who want to help their adult children enter the housing market.
1. Help fund a first home savings account
Parents can help adult children enter the housing market by supporting their first home savings account (FHSA). This registered savings plan allows first-time homebuyers aged 18 and older to contribute up to $8,000 per year, with a lifetime maximum of $40,000.
FHSA contributions are tax-deductible, and qualifying withdrawals, including any investment growth, are tax-free when used for a home purchase.
You can’t contribute directly to someone else’s FHSA the way you can with a registered education savings plan. The account holder — your child, in this case — must make the contributions themselves. However, you can gift your adult child the money to contribute, allowing them to take full advantage of the tax deduction while still benefiting from your support. The same applies to the tax-free savings account (TFSA): parents who want to offer even more assistance can indirectly contribute to their child’s TFSA.
This also means the child, not the parent, receives the tax deduction. Unlike an RRSP, where the contributor claims the deduction, parents who give their child money for an FHSA contribution won’t see any tax benefit themselves.
2. Gift a lump sum
One of the most direct ways you help your adult children buy a home is by gifting a lump sum for their down payment. But banks have strict requirements when it comes to gifted down payments.
Lenders generally require everyone involved to sign a mortgage gift letter confirming that the money is a gift, not a loan. Borrowers must also provide proof that the funds have been deposited into their account — typically no later than 15 days before closing.
A gifted down payment may seem like a simple way to help, but it can carry unintended consequences, especially in marriage or common-law relationships. In New Brunswick, once the money is used to purchase a primary residence, it becomes a shared asset between partners. If the couple separates, the home’s equity would typically be divided, even if the money originally came from one side of the family. Unlike a loan, a gifted down payment offers little to no recourse for parents if the relationship ends.
To protect the funds, it’s worth considering the long-term implications and talking to a legal expert before handing over the cash.
3. Provide a loan
One way to protect the gifted amount is to structure it as a loan rather than a gift. However, a formal loan agreement with clear repayment terms is typically required, and this could impact the adult child’s mortgage qualification since lenders will factor it in as debt.
Perhaps the best remedy is for the child and their spouse to have a marriage contract stating that the money offered for the down payment is not part of their marital assets. However, that requires legal assistance, documentation and a potentially challenging conversation.
Another key consideration for parents is whether or not they can afford it. Before giving a gift, you are encouraged to ensure that your financial plan is secure and that you’re not putting yourself at risk of running out of money.
4. Co-sign the mortgage
Another common strategy doesn’t require cash — just a signature. By co-signing a mortgage, parents legally agree to take responsibility for the loan alongside their adult child. This means that if the primary borrower (the adult child) can’t make payments, the co-signer is fully liable for covering them.
That means the parent is on the hook as much as the child should things not go as expected. If a problem arises, this could open you up to the liability of having to pay that mortgage or whatever penalty is contractually obligated by the bank.
This option is popular among parents whose children struggle to qualify on their own, whether due to insufficient income, limited credit history, self-employment or other factors that affect mortgage approval (for example, passing the “stress test”). By adding a financially stable co-signer, lenders may offer a larger loan or better terms, as they consider both the adult child’s and the parent’s financial situation when assessing risk.
While co-signing can help an adult child secure homeownership, parents should carefully consider the risks, including the potential impact on their own debt-to-income ratio, which could affect their ability to borrow for other needs or even retire comfortably.
In conclusion
While there are many ways to offer support, each comes with potential drawbacks. An MD Advisor* can help you evaluate your options, navigate the risks and create a plan that supports your child — without compromising your own financial wellbeing. If you’d like to chat, contact Liane Landry-Dupuis, Senior Financial Consultant, MD Management Limited, at liane.landry-dupuis@md.ca.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies and Scotia Wealth Insurance Services Inc. For a detailed list of the MD Group of Companies visit md.ca and visit scotiawealthmanagement.com for more information on Scotia Wealth Insurance Services Inc.
