Finance Roll

When buying your first home, there are a lot of hurdles to overcome. Financing is one of them. For many people, this means applying to the friendly bank of mom and dad.

Getting Your Parents Help With Financing A Home

They say you should never do business with your friends. It is a time tested way to make them former friends. The bonds that tie us together can get tangled when differences of opinion arise. While this is all true, it barely registers compared to the complexities of a family. When a group of people live together for twenty years or so, the complexities only get more and more tangled.

While doing business with family members is often unwise, buying your first home often requires help from them. Coming up with cash for down payments, closing costs and even qualifying for a loan can be problematic. The bank of mom and dad often represent your best option to getting the deal done. While this is true, most people are uncomfortable with the idea of hitting up their parents for the help. You are out of the house and supposed to be independent. Walking through the door with hat in hand doesn't exactly make you feel independent. Well, there is a solution that both you and your parents can use without too much suffering.

Allow me to introduce you to the equity sharing agreement. This little dandy can be used by anyone, but is most often used by parents and their kids when that first home is purchased. The agreement is pretty much what it sounds like. You find a home you want to buy and then agree to an equity sharing arrangement. Let's take a closer look.

Assume I find a home for sale for $300,000. I need a $60,000 down payment for it, and cannot float this amount no matter how many quarters I roll. I go to dear old mom and dad and hit them up with an idea. If they agree to pay the deposit and closing costs, I will make all the mortgage payments, pay the property taxes and agree to keep my room clean. In exchange for this, they will own 20 percent of the home and I will own 80. When the home is eventually sold, I will pay them 20 percent of the gain. Simply put, I get their help in purchasing the home, they eventually get something out of it and I don't feel too guilty about asking them for help. Hey, it is as close to a win-win as you are going to find.

Buying your first home can be a challenge from a monetary stand point. Don't feel too guilty about applying to the bank of mom and dad.