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Helping The Kids To Buy A House
An equity sharing arrangement
might be
the answer . . .
Parents helping their children
invest in their first home is
certainly not a new idea. We see
a variety of choices being
made in the marketplace. Some
elect to co-sign on the mortgage
with the children. It doesn’t
cost Mom and Dad any money, but
it may help the children qualify
for a loan. Others either give
or lend money for the down
payment. A few even decide to
put enough money to “buy down”
the mortgage
interest rate, allowing for the
rate to be lower in the first
few years, making it easier to
qualify for the loan by lowering
the monthly payment.
The concept of equity sharing,
although used by builders
and real estate investors, may
also be one of the best methods
for helping the kids buy a
house. Shared equity allows the
children to feel less indebted
than with an outright loan, and
at the same time gives parents
an added tax advantage. |
An equity sharing arrangement might
work like this: The young homebuyers
purchase a
home jointly with their parents,
they split the down payment and
ownership costs including
monthly payments, and the children
rent the parent’s share of the home.
The benefits to the young homebuyers
include affording a larger home for
less money, having lower down
payment and ownership costs, ease of
qualifying for the loan, and the
beginning of building an investment
portfolio. The benefits to the
parents include helping the children
to afford a home, receipt of rental
income, financial and tax benefits,
increasing their investment
portfolio, and having a reliable
tenant.
When the home is sold, perhaps after
a specified period of time, the
parents get back their initial
investment, and the additional
proceeds are shared in proportion to
each one’s investment.
While shared equity can be arranged
between perfect strangers, the
beauty of this agreement is seeing a
family investing wisely together,
with both parents and their children
gaining benefits they may not
otherwise obtain alone. Both parties
should exercise due diligence by
receiving counsel
from experts in the areas of
accounting, financial planning, and
legal.
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For Buyers |
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