Shared equity mortgage to the rescue.

By
Real Estate Services

Despite the recent softness in the real estate market, buying a home can be a stretch for many first-time buyers and young move-uppers. Prices are relatively high in most areas and lenders are getting fussy. Shared equity mortgage could be worth a look. Let's go over some of the basics.

Normally it involves well-off parents helping out their children. But it can be anyone besides the parents. Anyway, let's say a father contributes $60,000 toward a down payment on a $300,000 house his married daughter wants purchase. His investment is 20% of the home's value. He would get that back at a future sale, plus 20% of any appreciation to that date. Just a short example. 

Benefits to the daughter are that her family is able to buy the house they need in the neighborhood they desire to live in and the home loan is easier to qualify for because of the 20% down payment that they otherwise wouldn't have. And the father is now a real estate investor and proud to be able to help a young family out.

Everything in an arrangement like this should be put in writing. Normally the homeowners would be responsible for the mortgage payments and during tax time get the interest deduction. Property taxes and insurance are open for negotiation, although often they are split. Many experts recommend that an end date is set, ranging typically from 3 to 10 years, when the investor, the father in this example, will be paid back either by means of a refinance or a sale.  

Should the father's name be on the loan? It could be, but deals between family are frequently very flexible. If I were the father, I'd have an attorney write up the contract. And keep my emotions in check since we're talking about a financial judgment here. For many young families, shared equity mortgage could be the path to take.

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_______________________________________________________________________________

Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

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Location:
Nevada Clark County Las Vegas
Tags:
equity
mortgage
real estate
home
lender
house
home loan
investor
homeowner
property
refinance

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Rainmaker
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Esko Kiuru

Cheryl,

It'd be another applicant.

November 10, 2007 11:42 AM
Anonymous #8
Anonymous
Garrett

Hello,

I'm not sure if you're still around as this post from 2007. Do you know about the tax implications of the Shared Equity arrangement? Would the father in your example be subject to the gift tax if he does not want to be on the mortgage? Said another way, the father would help with the down payment but the son would be responsible for the mortgage itself. Please let me know. Thanks.

 

Garrett

March 27, 2009 08:25 AM
Rainmaker
325,145
Esko Kiuru

Garrett,

Thanks for stopping by. I have to refer you to a tax professional who would be a better source to answer your questions.

March 30, 2009 07:31 AM
Anonymous #10
Anonymous
Patricia Schneider

This is great information.  I am a new home buyers and non-relatives want to help us get into a house and this is one option we are looking at.  Does this work, even if we don't have perfect credit and on our own qualify only for $140,000 loan, but our interested party wants and can put !00,000 in cash up front? so we can get into the house we want in the desire neighborhood?

Thanks

June 16, 2009 12:47 AM
Rainmaker
325,145
Esko Kiuru

Patricia,

It should work, however, it's difficult to say for sure without going over your credit situation, income levels etc. If you are interested in knowing more, feel free to get in touch by phone at 702-499-1006.

June 16, 2009 11:01 PM
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