Q: I have a friend, “Bryan,” who is looking to buy his first home. His personal finances will allow him to purchase something just under $200,000, but his mom has offered to purchase something more expensive with her own home equity loan and has suggested adding his name on the deed.
We’re trying to figure out the pros and cons of each scenario. “Bryan” knows that with his mom’s assistance he could get a bigger, better home – but does simply being on the deed and not actually on the loan make a big difference?
A: If I had a choice, I’d rather be on the deed, but not on the mortgage. That way, if something happens, you have access to the equity but no mortgage risk. But something doesn’t feel quite right for this situation.
It’s generous of Bryan’s mom to offer to purchase the property, but it’s better if she and Bryan purchase it together. She can contribute the equity from her home equity loan, and he can be on the mortgage, which will help boost his credit history and score.
But I don’t think Bryan should stretch too far. And, the partnership agreement with his mother should be formalized in writing. Otherwise, if something unexpected was to happen to her, and she would die, there could be serious estate and tax complications.
Over time, Bryan should buy out his mother’s share of the property (or, she can set it up in a way that she gifts her share to him over a number of years). An estate attorney can help out here. I suggest your friend Bryan find a good one and work out how to make this property purchase happen.
May 13, 2005.