Helping family with house payments
My wifes sister and husband can no longer meet the payments on their house. He can no longer work and she is working and earning enough to cover a little more than half the monthly payments.
Lets assume they a have 000 in equity in the house.
Can we agree to pay half the mortgage costs from now for half the value of the house. SO lets say when the mortgage is paid off, they sell the house and keep the first 000, and split the remaining value with us. I think if we do a "side" agreement, they keep the mortgage in their name and keep their credit rating. ANd we agree to fund 50% of all future mortgage payments for 50% equity less 000 without having to refinance. WHen the current term of the mortgage is up and they need to renew (2 yrs from now) then we could put all name on the mortgage.
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This sounds like a generous & fair arrangement, but you need to have an attorney draft whatever agreement that you enter into and review the terms of the mortgage.
The thing you need to be careful of is that you don't have the right to any portion of the bank's equity. Also, the mortgage note may require that you get the bank involved if you are selling a portion of the property to a 3rd party.
I'm not going to comment on how fair the deal is - that's entirely up to you and your family. I will say something extremely important.
Whatever deal you work out, get it written up by a lawyer and signed by everyone.
Ten years down the line it is very frequent to find that different people have different memories of what was agreed. And with an investment of this size, one side can find they are hundreds of thousands of dollars out of pocket with no recourse. That can not only make you very poor, but also cause an irrevocable split between families. You can find yourself with no money and never speaking to your family again.
Also ake sure everyone understands the consequences of what happens in all possible circumstances.
There are plenty of things that might happen that could spoil your plans. You need to know in advance how they will be handled. What happens if one party or the other stops paying their share of the mortgage payments, and the bank forecloses? Now there is no equity to be shared out. Are you happy with getting nothing back in those circumstances? What about if your wife's sister and husband have to move and sell the house at a loss? Are you OK with getting nothing back then too?
If the only reason you are doing this is to save refinancing fees, then it might not be worth it.
EDIT: I said I wouldn't comment on the fairness of the deal, and whatever you think is fair is fair for you, but if this were a commercial deal your wife's sister's family would be paying you rent for the half of the house that you own. You are essentilly giving them that rent. What happens when the mortgage is paid? Are they going to keep living in a house you half own and not pay you rent?
You are proposing an investment. As I understand it, your Sister-in-law doesn't take a mortgage interest deduction as we do in the states. But, in effect, you are committing to half the payment, and as an investor, should be able to take a deduction for this expense.
In the US, one has to have an interest in the property as well as an obligation for the debt, so there would be a need to be added to the deed, as well as the mortgage. From the bank's point of view, Their risk is less with others committing to make these payments. Their first position lien doesn't change, on sale of the house they still get paid the remaining balance.
This is a great deal for the couple you're helping. The imputed rent is far more over time than any appreciation.
Either way, a lawyer has to be involved.
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