Parents can help with a down payment on a house for the kids, while protecting their money, with a shared-equity mortgage.
It’s not a common way to help the kids get in a home, but it can give parents some security when they loan money for a down payment.
In a shared-equity mortgage, parents pay a portion of the down payment and are promised a percentage of the profits when the kids sell the home.
The percentage depends on the agreement, according to mortgageloan.com.
Upon sale, the parents could recoup their entire investment or even make more if the value of the house rises. On the other hand, if the home isn’t well maintained or if prices drop, parents could lose their investment.
The key is frank communication between family members and an agreement that all parties understand and agree to. The agreement might require the kids to sell the home by a certain date, or it might require them to refinance. It should also spell out what will happen if the kids default on the mortgage. Will the parents take ownership of the property, or will they lose their investment?
What if real estate prices drop, leaving everyone with less money than they started with?
What are the general maintenance requirements that all parties agree to?
What say will parents have over optional remodeling?
Perhaps for these risks, this type of mortgage is unusual. Today many alternatives exist for first-time home buyers, including FHA loans and special state programs.
