Co-ownership, is it right for me?

Many first-time home buyers have reported that they needed help with purchasing a home from their parents.  Co-ownership between parents and children has become a popular alternative route to homeownership. Parents have many different options when looking to help out their children with homeownership. These options range from co-ownership to gifting a down payment.

Co-ownership

Home sharing offers many first-time home owners the opportunity to become a part-owner of a home. When applying for a mortgage, lenders look at credit score, debt to income ratio, and other factors that can make qualifying a challenge. When applying for a mortgage under co-ownership, these qualifications become easier to meet since it brings in more income to offset the amount of debt.

There are many options when it comes to co-ownership between parents and children, such as Joint Tenants with the Right of Survivorship (JTWROS) and Tenants in Common (TIC).

JTWROS is a form of ownership where each co-owner has an equal share of the property. If one of the owners were to pass away, their share of the property goes to the other owners. Tenants in Common is slightly different in that each co-owner can will their share of the ownership to someone else. TIC does not guarantee that the other owners of the property will get the deceased owner’s share.

Co-ownership should not be taken lightly and comes with a few pitfalls. If a parent co-signs a loan and the child was to fall behind on the payments, it could end up hurting the parent’s credit rating. When entering into a co-ownership, even between parents and children, it is best to speak to a lawyer. Parents and children should make a solid agreement in writing that outlines who will be responsible for what payments, what happens in unforeseen circumstances, and if the living arrangements no longer work for one party.

Co-ownership not for you?

If co-ownership isn’t right for you, there are other options that could help you lead you to become a home owner in the future. Parents that are looking diversify their investments could provide all the financing for a child’s home loan. The parents could also buy a home themselves and rent it out to the children.

Parents can also gift children the money for a down payment if they don’t want to enter into a co-ownership. The money gifted for the down payment cannot “magically” appear in the borrower’s account at closing time, so mortgage lenders may require the person gifting the money to provide a letter outlining the amount that they are gifting as well as the relationship to the recipient and that the money is not subject to repayment.

When looking at purchasing a home, there are many ways that the Bank of Mom and Dad can help you. Get in touch here to set up an appointment so that we can find the option that best suits you!