Another interesting topic that came up at CPFC15 was the concern that First Home Purchasers are relying more and more on Parental help with the transaction (monetary help, as well as advisory help).
I have spoken a few times about how both sets of parents helped my wife and I purchase our first home (leading to the Best Financial Advice Given, ever), and I don’t think parents helping kids buy their first homes is a new thing. In our case my parents helped us to make sure that we didn’t have to pay CMHC Loan Insurance premiums, and my wife’s parents helped with furniture purchases and repairs in our first home.
Is this a good or bad thing? As usual, it all depends on the situation.
In my opinion this is mostly a good thing (if the parents can afford to help out their kids, however, if the parents have to borrow money to do this, it is a very bad idea), but there are scenarios where this might not be the best idea:
- If the parents are loaning the entire down payment on the house for the children, this is a bad thing. I always espouse that with all things people are much more diligent and attentive to a debt if they have “skin in the game” (i.e. their own money is part of the purchase). It also might create a sense of entitlement in the children, assuming their parents will continually bail them out in hard economic times.
- The money loaned can simply allows the “kids” to become very house poor, and ties them down to a home that symbolizes being broke (to them).
- If the money is loaned because “the kids” don’t have a very good credit rating, and can’t get a mortgage without a large down payment (or worse without a co-signer). Most times a bad credit-rating is earned, and maybe they really are a bad loan candidate ?
Families and money sometimes are a very bad mix, both parents and children should think carefully before there are large monetary transactions “between them”.
My wife and I will absolutely defer our retirement in order to get our kids established. One day we’d love to be able to help them buy their first home.
In practice though, I don’t imagine we’re going to just hand over a big cheque. I’d like them to return home for a year or two after school and save for their first home. It’s part of our teaching them budgeting, investing, and cash flow.
I think a lot of people do this without thinking though – that’s the problem. We’ve discussed and determined all of this though, it’s a deliberate choice we’ll make if necessary. Getting our children ‘well’ established is more important to us than our own early/normal retirement dates. Most people would disagree with that though.