Have you ever thought about buying your parents a house? Besides being kind, loving children, why would you buy a house for your parents? The reasons are endless, and with Royal Canadian Realty, we can help make those dreams come true. We are here to make the process as enjoyable and stress-free as possible. Let’s take a look at the many options to buying a house for parents.
First, why would you consider buying your parents a new home? Their current home may be too much for them to handle as they age, or their retirement funds are insufficient to take care of their current housing needs. You may want to purchase a house for your parents so they can live closer to you, but can’t afford housing costs or don’t qualify for any stress tests or new mortgage rules. One reason you may have to do such a thing is simply because you can afford it and want to do it for your parents!
Ways to Buy a House for your Parents
Cosign on a mortgage: This can be beneficial when your parents have a low income. Sometimes low income can make getting a mortgage difficult, or even getting good terms. Parents would still need to have good credit since lenders will look at all borrowers’ credit scores. If your parents have already filed for bankruptcy, getting a loan will be difficult. At any rate, you may be able to get a bigger loan amount by cosigning. Any assets can be transferred when the parents pass away. Remember though, being a cosigner means you are responsible for payments as well. If your parents can’t make a payment, you must be able to do it.
Contribute the down payment: Helping with a down payment will help your parents, as well as protect your credit score. A down payment will help parents get a smaller loan that is easier to pay off, especially if they are on a fixed income. Giving the down payment in advance is recommended so it doesn’t show up on a recent bank statement. This is recommended because a large deposit could mean a loan they have to pay back and can make a lender nervous when parents apply for a mortgage. There may be tax implications so break up the down payment into installments when you are giving it to your parents. Documented down payment gifts can be accepted by lenders, and you don’t have to cosign.
You can buy the home and rent it to your parents if you qualify for tax deductions: If you buy a house and rent it to your parents, you may qualify for tax deductions involving property taxes, maintenance, depreciation and mortgage interest. Second homes are often considered investment properties which cause you to pay a higher interest rate than on your first house. Sometimes these rates offset the tax deductions, and that’s something to think about. You need to charge a competitive rate as well, even though you may want to give your parents a deal. Parents will be able to skip the process of getting a loan, and it gives you a second income.
Buy a second home by yourself: If you are secure enough to handle a second mortgage, you can always buy a second home and let your parents live there. You will need to know how you want to list the property, such as a second home or investment property. The differences affect the taxes and loan rate. You may need a larger down payment on the second house, and there may be higher requirements to offset risk on the lender’s end.