COLUMN: Ask the Money Lady – Buying a home with kids

Hey there, time traveller!
This article was published 01/09/2024 (274 days ago), so information in it may no longer be current.

Dear Money Lady,

I want to buy a house with my children, and we would all be on the mortgage. My lawyer has suggested that we do this purchase as a corporation to protect all of us on this investment. He said this is necessary in the event that circumstances change in the future and a settlement would have to be considered. He also advised me to check with an accountant too. What do you think? Olivia H.

Dear Olivia – I think that’s a terrible idea.

It’s possible, but this would mean that the corporation owns the home, and the buyers (you and your adult children) would need to set up shares in the corporation to divide ownership. I don’t usually like to challenge or disagree with legal advice; but in this case, I have to say, I think setting up a corporation for homeownership is a bit of a money grab and probably not necessary. Buying a home with your children is not the same as buying into a franchise business. Everything you need to protect your ownership and rights can be handled through the registered title.

So how do you do that? Well, you will want to register title on the new purchase as percentages. This is a simple method when using a standard bank mortgage. You are all on title and all on the mortgage, but the ownership is placed by a percentage of ownership at the time of title registration. Another way to do this could be to place a collateral charge on the property, again in all of your names. The collateral charge will be setup for 100 percent of the value of your purchase and you could then split up the loan segments among those that owe a portion of the mortgage debt. Let me give you an example.

Let’s say a parent wants to help out their adult child in purchasing a home and this home costs $500,000. In order to make this a conventional mortgage request, a 20 percent downpayment would be needed to purchase. So, for this example, let’s say the parent was willing to buy into this purchase and provide the 20 percent down ($100,000 investment by parent). So, that would leave a mortgage of $400,000. With a standard mortgage we would put all owners on title and have the adult child pay the mortgage payment with title clearly setup as 20 percent to the parent and 80percent to the child. When the home is sold in the future, perhaps for $700,000 the parent is still entitled to their 20 percent, which is now worth $140,000.

A collateral charge makes it easier when you have more than one child or multiple owners making payments to the debt. With a collateral charge example, the parent still owns 20 percent, but now there are separate loan segments on the property registered to the two or more individuals and divided up as per ownership percentage. For example, child 1 could have a loan of $50,000 (10 percent ownership), child 2 could have $250,000 (50 percent ownership) and child 3 could have $100,000 (20 percent ownership). Basically, the collateral charge gives more flexibility to the owners, and it has no term or renewal, so it is highly adjustable over time and can be paid off and drawn down again many times. Personally, I think a collateral charge provides the most freedom with multiple owners and doesn’t need to be requalified for over time, when things change for all participants. I also like to use this product as an estate planning tool. Everyone’s ownership, debt or investment is clearly defined, and if they pay it off, they could draw down their charge segment in the future for home improvements, etc., without qualifying again.

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Christine Ibbotson is a Canadian finance writer, radio host & YouTuber. For more advice check out her YouTube channel: ASK THE MONEY LADY – Your Canadian Finance Coach.