a situation (newbie in mortgage topic)

[mla]

Hello,
I am a real newbie in real estate topic. Never had a mortgage (renting an apartment).

The situation:
my son asks me to take a mortgage for a new condo. I don't have to put a penny.
He will put 10% for the down-payment and will give me at least 5 payments amount as a security fund in the scenario that he will not be able to pay. In the situation that 2 payments will not be made I can put the apartment for sale. I told him that I do not accept any renting to other people.
The question:
in the scenario that withing a first year something will go wrong and I will need to sell the apartment.
What are the consequences beside a headache? Is there a guarantee that after all 10% of down-payment could cover all the losses related to fast sell? My point is that I can go for it (I want to help to my son) but in any circumstances will not be involved in paying the money out of my pocket.
I am talking about Montreal. The cost of the apartment somewhere in between 250-300K.
I will appreciate if somebody can provide an advice based on the general info provided.

What are possible traps and etc.
Thanks.
Michael.

 

[Thomas Beyer]

Yes a good idea to help son. But you could do better even. Buy two or three instead. Montreal is growing, Quebec has a better credit rating than Ontario, and soon AB and BC, and people love to rent.

You need to ensure your son doesn't overpay, ie if he pays $285,000 say, that is actually good value and not inflated ie really a $250,000 condo. Do some online research, talk to a few realtors in the area and walk around to see what else you can get in the area for, say $285,000.

It makes good economic sense to give your kids a leg up with cash and/or credit. You know your son, so you need to assess the likelihood he defaults.

Generally Montreal's prices will likely rise so you and/or your son will come out ahead in 2-3 years, and certainly in 5 which is the minimum hold period I suggest if you buy with an insured sub 20% down condo. Convince him to put 20% down as high ratio mortgages are more risky. Or buy two yourself and rent them out to supplement your retirement lifestyle.

http://www.huffingtonpost.ca/2017/06/06/montreal-housing-sales-prices_n_16969126.html

http://www.huffingtonpost.ca/2015/1...ties-remain-a-relative-bargain_n_8747046.html

Why not offer this to your son: " Hey, son. I think it is awesome that you want to buy some appreciating asset. Why don't I help you with another ten percent so you don't have to pay the expensive CMHC insurance premium. But I then will get 20% of any equity in the condo when you sell. I also think we should buy one more together. If interested, I put up 20% for the next one, say the one we saw yesterday one floor below, and you manage it, rent it out and we split the profits 50/50. What do you say to that, son ? I hear they have this great REIN network which assists rookies like you in asset selection, creative landlording and savvy financing techniques. Bummer they don't offer a monthly event in Montreal, but perhaps go to their next ACRE event and get their online version ? I'll pay half of it."

 

[Vine Group]

You need to understand that you will be signing two declarations. First, you will be signing that this condo is your primary residence (10% insured mortgages don’t allow for rentals). Second, that there is no third-party beneficiary. I recommend you review this with the lender and understand your legal obligations to the lender. I highly recommend you seek legal advice.

If the market values drop, you run the risk of not having funds to cover the mortgage balance (keep in mind premium of 3.1% will be added to the mortgage balance so you will only have 6.9% equity).

 

[Thomas Beyer]

.. I highly recommend you seek legal advice.
. ..

Why is that ? When co-signing a mortgage for your son's primary residence ?

 

[mla]

Why is that ? When co-signing a mortgage for your son's primary residence ?

Thomas and Vine Group thanks for the answers.
Vine Group do you have to add something to Thomas's comment?

 

[mla]

Thomas and Vine Group thanks for the answers.
Vine Group do you have to add something to Thomas's comment?

Thomas I want to ask actually a question about leasing... in case that my son, let say will decide to go out of country for a year... In this case all what Vine Group says is probably absolutely right?

 

[Thomas Beyer]

Thomas I want to ask actually a question about leasing... in case that my son, let say will decide to go out of country for a year... In this case all what Vine Group says is probably absolutely right?

Once you own a condo or house and have a CMHC mortgage no one cares what you do in a year or two. No one. The CMHC certificate is good for 25 ( or 30) years. The intention at the beginning matters. One is allowed to change one's mind down the right and guess what happens: nothing.

Of course you can then sell it or lease it or move in yourself !

Of course if you pay a 3.5% premium, plus realtor and legal fees AND mortgage discharge penalties there is a good chance you will lose money in a year or 2 even in a slightly appreciating market.

As such, take a 5 year view at least !

 

[Vine Group]

Why is that ? When co-signing a mortgage for your son's primary residence ?

I understood the question was Michael taking a mortgage on behalf of his son. Not guaranteeing a mortgage for his son. As a co-signer, its less of a concern because the insurer and the lender will have to approve the terms in advance. Nevertheless, I recommend seeking legal advice.

 

[FranLyn]

Once you own a condo or house and have a CMHC mortgage no one cares what you do in a year or two. No one. The CMHC certificate is good for 25 ( or 30) years. The intention at the beginning matters. One is allowed to change one's mind down the right and guess what happens: nothing.

Of course you can then sell it or lease it or move in yourself !

Of course if you pay a 3.5% premium, plus realtor and legal fees AND mortgage discharge penalties there is a good chance you will lose money in a year or 2 even in a slightly appreciating market.

As such, take a 5 year view at least !

Great advice!

 

[Alvaro Sanchez]

Please note that 10% is not enough money to cover cost in an event that you need to sell property in 1-2 years. You will also need to consider that in the case that the property needs to be rented (due whatever reason) that rental income can cover the cost (mortgage, condo fees, PM, vacancy, insurance, etc) and provide some positive cash flow.

I would look at this as a classic JV (with your son as JV partner/Money partner) so find a property that meets the basic investment criteria. You might need to put an extra 10% down to be able to cash flow. Then make sure that both are on mortgage/title then he can move-in and rent from the venture for 1-2 years (or longer).