How to help our children get into the Real Estate Market

Wednesday Oct 03rd, 2018

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How to help our children get into the Real Estate Market

It’s time for a paradigm shift!

I think of my kids, and how on earth it will ever be do-able for them to get their feet into the real estate market.

I have three grown kids of my own, one who married money (way to go!) and two daughters who already occupy my mind.  They are, at the moment, oblivious to the challenges ahead, and haven’t yet buried themselves in debt.  There is still time to set them up as best as I can, to be as independent as possible.

Let’s be clear on the basics (without looking at extra debt, etc): 

  • A minimum of 5% down,
  • A “permanent” job with already two years in
  • Good credit
  • Closing costs of around $2000

As a realtor and a mother, a few suggestions:  

1.  If possible, avoid the temptation of the OSAP loan.  They come out of school and are stuck with this enormous debt for many years.  This debt will certainly affect their ability to get a mortgage until paid off.

2.  I, for one, suggest to my kids to work NORTH, as opposed to the pull towards Toronto.  The cost of living is easily double to live in the GTA as it would be in the bigger cities north, and I doubt the pay check is double (and I venture to say the quality of life is much lower- stressed up north!)

3.  Most teens have a part-time job.  Encourage an easy, automatic transfer in a manageable amount to perhaps Tangarine or somewhere that is a bit out of reach.  Seems like a no-brainer, but it’s amazing how many people don’t set it up.

4.  Consider investing in the starter home together.  If you have equity in your current home (parent), in today’s day and age, helping your child make their first investment (temporarily), will be an enormous stepping stone for them.  We all know how quickly equity builds and real estate values always go up over long periods of time.

5.  If your child is considering a credit card – eeeeeek --- encourage them to only have maybe a $500 credit limit, or a pre-paid credit card, as not to lose control of the interest payments.  It is NOT necessary to have a credit card to “build credit” for more than a year or so before applying for a mortgage.  Credit can be built in many ways that are much less harmful.

6.  Avoid AT ALL COST getting into the rental world.  This is a vicious cycle!  It is nearly impossible for kids to put aside savings big enough to amount to a down-payment, when they are paying $1000 or $2000/mo to live in a rental.   I see it over and over again – couples who planned on buying, saved some money, and “rented for a year”, and five years later, they’re still stuck there, usually in a place they don’t even like, in a “dog patch” with people living below them…  The longer they can stay home and save (as long as they’re saving), the better.  We need to help them !!!

7.  Mortgage companies need to see a consistent work place!  Two years of permanent employment is necessary to satisfy lenders of serious commitment!  Job-jumping is not a good idea!  Teach your kids to stick to it, even if it’s part-time.  

This world is different than when we were kids.  I was given a $5000 “grant” from the Ontario government to help get into the world of owning real estate.  Those things don’t happen anymore.  The chance of paying off a mortgage in our lifetime is more and more rare. 

Things have changed, and for our kids’ future, we must change our old fashion way of thinking, of just “throwing them out there” to make it on their own.  Our starter home was $150,000.  Today, starter homes are $600,000 and I’m quite sure our income didn’t increase four-fold. 

Lastly, we need to teach our kids good spending habits, and financial life lessons that don’t seem to be a major priority in schools today. 

 


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