Shared equity mortgage to the rescue.

By
Services for Real Estate Pros

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.

Posted by

_______________________________________________________________________________

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

close

This entry hasn't been re-blogged:

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

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the graph to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the scissors to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainmaker
307,377
Maggie Dokic
Special Miami Homes - Miami, FL
CDPE, SFR, Pinecrest | Palmetto Bay |
Esko, thanks for writing about this.  It makes perfect sense but I didn't know it existed.  Is it something that can be proposed to most lenders or harder to find?
Apr 23, 2007 03:22 PM #1
Rainmaker
111,471
Chris Lengquist
Keller Williams Realty - Olathe, KS
I have used this on a few occasions dating back to the mid-90's in Suburban Maryland.  It can work. It can get messy.  A thorough contract needs to be drawn up with all sides in complete understanding of what their roles are, when the Equity Share will terminate, etc.  With all of that, it can be a great tool. 
Apr 24, 2007 04:04 PM #2
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Maggie,

The best way to handle it is to get an attorney involved, so in case there are disagreements, it's all in writing. You know how it can be within a family.

Chris,

You're right about getting it in writing. That'll prevent a lot of potential headaches, ulcers, falling hair, family feuds and what not.

Apr 25, 2007 11:50 AM #3
Rainer
74,713
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI
This sounds like a great way to more out of your money available for investment, and to help someone in need of a home.  Like you said, good contracts make for good relationships. Thanks for sharing! 
Sep 08, 2007 08:53 PM #4
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Dan,

This arrangement could be very useful for first-time buyers.

Sep 10, 2007 03:29 PM #5
Rainer
27,181
Cheryl Hale
Boca Raton Mortgage Broker - Boca Raton, FL
Mortgage Lady - South Florida

Esko,

How is the outside contribution listed on the 1003?  I would assume gift funds, but what if the contributor is not a family member?

Nov 10, 2007 03:27 AM #6
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Cheryl,

It'd be another applicant.

Nov 10, 2007 11:42 AM #7
Anonymous
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

Mar 27, 2009 08:25 AM #8
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Garrett,

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

Mar 30, 2009 07:31 AM #9
Anonymous
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

Jun 16, 2009 12:47 AM #10
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

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.

Jun 16, 2009 11:01 PM #11
Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the pants to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainmaker
325,145

Esko Kiuru

Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the house to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information