Equity Sharing

In a shared-equity arrangement, the home buyer and an investor—frequently a parent, relative or friend— buy a house or condo apartment together. It's one way for first-time buyers who otherwise couldn't afford to buy, or who wouldn't qualify for a mortgage, to do so. For example, rather than making a loan or gift to help a child into homeownership, parents become part owners and rent their share of the place to the child. As investors, the parents share in the appreciation of the house. As landlords, they also get rental income and the tax deductions that go along with rental real estate.

Both parties enter into a contract that specifies who pays what portion of the down payment, mortgage interest, property taxes and monthly costs, how much rent the child will pay, and how equity will be split when the house is sold. Parents could make the down payment and pay most of the mortgage interest and taxes. Or equity could be split 50/50, with each party putting up half the down payment and agreeing to pay half of ongoing expenses. The possibilities are limited only by the needs and desires of the contracting parties.

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