Helping a child buy a home can be one of the most rewarding things a parent can do. « If parents can afford to help their child buy a home without compromising their own finances and retirement plans, » says David Weliver, « helping their child buy a home can help the child settle in earlier and reduce the debt they have to start their life with. » Joint equity financing agreements typically involve two parties: a « user » and an « investor ». The occupant is the person who lives in the house and the investor provides cash that can be used for the redemption or release of equity. In most cases, this is also a traditional bank mortgage. For an agreed period, the occupant resides in the house, maintains it and pays all expenses. At the end of the lifespan, the user buys the investor or the house is sold. Most people understand that they can help a parent buy a new or larger home by making a gift to help with the accounting or by acting as a co-signer of the mortgage. Often, a parent or sibling is willing to help their parent, but would prefer to do so in a way that does not involve a gift and protects their financial interests. This may be the case, especially when a parent wants to help a child, but does not do so in a way that is potentially harmful to other children.
« Negotiating terms with family members can be an unpleasant situation, but it`s important that everyone does it in advance, » Gupta said. Suppose a person wants to buy a house, but they can`t afford to do it alone. If a parent is willing to help the person buy the house, they may choose to help the person by granting a joint equity financing agreement. In the agreement, both parties obtain conditions that vary from situation to situation. First of all, you need to protect your own relationship with your child, which means that you are not building a situation that could become furious. « That`s why I recommend parents make a gift of money, not a credit, » says David Weliver. « That`s also why I don`t recommend co-signing. You could establish a legal contract that says the child owes $25,000 to mom and dad, plus 4% interest, and if the child doesn`t pay, mom and dad could take them to court. This certainly doesn`t make it any less likely that the arrangement will get upset (even though he makes sure that when he gets furious, he gets REALLY furious!) After processing the basics, help them navigate the mortgage process.
Share your experiences with them and help them get in touch with knowledgeable experts. The whole mortgage process is daunting and it can be hard to know where to start. Even if you are not an expert, you can share your experience with them and help them find someone to give them wise advice. Above all, you can help them not to be exploited by predatory lenders or to be encouraged to an unfavorable loan. In any case, they will want a written and signed agreement for this. It should indicate the terms of the loan – interest rate (if any), payments, maturity dates, etc. You can choose to have your child make regular payments to you or you can choose that the entire balance is due and payable when the house is sold. Ryan O`Kane, head of mortgages and director of the ARBOR Financial Group in Santa Ana, California, said parents, for example, can offer their children some or all of their acompts.
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