Q: My husband and I went to speak to a mortgage broker. We are buying our first home but will share the home with my sister who cannot qualify for a loan due to a bankruptcy 28 months ago.
We have good credit. Our deal with my sister is that when we sell we will share the profit from the sale of the home half and half. As we don’t have money for the down payment and my sister does, she is going to give us the money and we will buy the home in our names.
Our mortgage broker said that she can’t be on the mortgage but can be on the title to the home. The broker offered us a 5/1 adjustable rate mortgage with 100 percent financing.
Do you think the loan is a good one and that we are handling this purchase correctly?
A: Often, clients come to me with situations like yours: various family members try to get together to buy a home.
It’s a wonderful thing to help others out, especially if it’s a member of your family. But this kind of help comes with a whole bunch of potential headaches.
For example, if your sister is an owner of the home, will she have a say as to when it is sold? What will happen to your arrangement if you have a falling out with your sister? Who will pay the expenses of owning the home? If you sister files for bankruptcy again, will her interest in the home be sold to satisfy her debts?
One option you can consider would be to have your sister gift you the money for the closing costs and at some future date you can pay her back these costs and even pay her an additional amount when you sell the home.
After talking through all of the risks of co-ownership, if you decide to proceed, a competent attorney can create a partnership type document outlining your rights, duties and obligations and those of your sister.
As far as the loan is concerned, a 5/1 ARM (a loan in which the interest rate is fixed for five years and then readjusts each year thereafter based on current interest rates) might be a good option for you if you plan to live in the home for five years or less.
You should determine what the fees will be on this loan along with the interest rate and get other quotes for this type of loan from at least one other mortgage broker and even one local or national lender in your area.
Until you shop the loan with other lenders, you won’t know if you’re getting a good deal.