The Situation
The clients, two police officers with two children, had been living in the upper portion of a parent's detached home for more than three years while the parent lived in the basement suite. Early on they had agreed, on a handshake, that they would eventually buy the property: a two-thirds interest at an agreed value of $1.2 million, with about $800,000 owed to the parent, and the remaining third later at market value. The home had since risen to between $1.55 and $1.65 million.
The Challenge
A sale between family members at a price agreed years ago, with a parent staying in the home, is a non-arm's-length purchase, and lenders treat it carefully: the price must be supported by a current appraisal, the amount owed to the parent has to be documented, and the down payment cannot simply be forgiven on paper without the right structure. One officer's credit file had no current revolving accounts and some old late payments, because the household's cards were all in the other's name. The suite's rent and the final purchase price both depended on the appraisal.
The Solution
We had the property appraised first, then had the clients' lawyer draw the contract of purchase and sale at the appraised value, about $1.65 million, with the balance owed to the parent set by that number rather than by memory. The parent's share of the equity became the down payment as a documented gift of equity, 20% or about $330,000, with the parent free to gift more on completion. The residential mortgage went to a major bank, a prime lender, at roughly $1.32 million on a 30-year amortization, with a lender discount available to police officers applied, both T4 incomes qualifying the file and the suite's market rent confirmed by the appraiser.
The Outcome
The purchase completed in the spring at bank pricing. The family owns the home it had been living in, the parent keeps the suite and a documented sale in place of a handshake, and three years of equity is now on title in the clients' names. The file is the shape of many officer purchases: strong, stable incomes, a family arrangement that needs documenting, and a lender that prices it as prime once the paperwork matches the story.