BluefoxToday blog : Shared equity mortgage to the rescue.

Shared equity mortgage to the rescue.

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.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 11 commentsEsko Kiuru • April 23 2007 01:23PM


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?
Posted by Maggie Dokic | Miami, FL | 305.81.HOUSE (46873), GREEN, CDPE, SFR, Pinecrest | Palmetto Bay | (eXp Realty LLC) about 12 years ago
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. 
Posted by Chris Lengquist, Kansas City Real Estate Investing (Ad Astra Realty) about 12 years ago


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.


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

Posted by Esko Kiuru about 12 years ago
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! 
Posted by Dan Hartman (Province Mortgage Associates - NMLS #2861) almost 12 years ago


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

Posted by Esko Kiuru almost 12 years ago


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

Posted by Cheryl Hale, Mortgage Loan Originator NMLS#276668 (Envoy Mortgage. LTD) over 11 years ago


It'd be another applicant.

Posted by Esko Kiuru over 11 years ago


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.



Posted by Garrett about 10 years ago


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

Posted by Esko Kiuru about 10 years ago

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?


Posted by Patricia Schneider about 10 years ago


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.

Posted by Esko Kiuru about 10 years ago