Millennials – Reach out to your parents for down payment assistance to later assist them in retirement
As the Millennial demographic progresses through education, family, and career; the entire world is paying close attention to their habits and their evolving needs. As the demographic ages and works toward establishing both their housing needs and real estate goals. The real estate market within the GTA has recently has seen what many considered to be inflated in the more recent years pricing the majority of the Millennials out of purchasing within Toronto and surrounding areas. The introduction of the stress test within the canadian mortgage climate has left many Canadians as whole wondering if home ownership will ever become a goal that they can accomplish, including millennials. As a millenial, I constantly find myself in conversations with my peers regarding setting realistic expectations surrounding home ownership. Especially within the Greater Toronto Area and other surrounding cities and towns. There are few factors that are working against many individuals between the age of 18-34. Employment is challenging, students loan debt averaging above $25,000, aging parents who do not have enough saved for their own retirement, amongst other factors that differ from the generations before us. Home ownership is still valued by Millennials by a resounding 86%, according to a poll conducted by CBC News; although 42% are renting and 21% still living at home. In spite of the challenges, one method to obtain the down payment to consider home ownerships is through gifted down payments from parents. The most recent quarterly report from Mortgage Professionals Canada indicated there has been an increase in gifted down payments of 20% since 2010 in Canada. I anticipate this trend to continue moving forward. Reality suggests that this may not be an option for many, but it is something that could be considered granted said millenial is responsible and is truly concerned about the long term growth of the entire family unit. With the cost of real estate, this has become a greater norm and a method in which millennials can begin to establish equity and begin the home ownership process in a realistic time frame. Canadian real estate has a strong history of appreciation and is still considered an important factor in wealth creation for Canadians. With the many factors working against this demographic, it is imperative that families work together to establish wealth as it is becoming increasingly difficult on an individual basis. Parents may gift a portion or the entire down payment for their children. However, all applicants who intend to be on the mortgage will have to meet lending criterias as determined by the lending institutions. The lending institution will expect the down payment to be obtained from sources such as cash, stocks, GICs or other sources that can be proven and may even be requested to prove. In that matter, it is best to avoid withdrawing funds from credit accounts as that would dissolve your application. It is important to note that banks expect your gifted down payment to be a gift by the core definition with no expectation of being paid back or even placed in second position against the property. The Canadian government will continue to take precautionary measures designed to protect the housing market and ensure housing continues to remain an important part of the Canadian society. Many parents have not saved enough for retirement and the baby boomer generation lived longer than the Canadian Pension Plan accounted for. Although the Millennial has mastered the art of traveling, social media, and avoiding becoming an adult compared to their parents, we need to consider how we will retire and the quality of life we would like to have. With the cost of housing expected to increase and the wages to fail to meet those needs, it is important for families to work together to avoid the looming risk of great poverty that many could face if we assume that employment and income potential will ever return to that norm our parents and grandparents experienced. We will need to ensure that we have a plan for how we will support our aging parents as we navigate our lives and establish families of our own. We cannot predict the quality of life our parents will experience, we hope for their independence and good health, but that will not be the reality for many. How will these needs be met? Who will cover the costs? Where will your parents reside? Although these are never easy questions to approach, but they are better addressed when all are in better health and can make sound decisions. Home ownership can be perceived as a ‘ball and chain’ but the income potential through rental income and equity is something many millennials will require considering employment options are limited. There are more factors to consider with respect to your application and what is required for a mortgage. But you may be closer than you think if you are able to partner with mommy and daddy dearest.