How exactly does this work when it comes down to purchasing a property together.
Lets say A has 100k cash and B has 300k borrowing power. Together they buy a 300k house. Since A does not need to borrow anything B needs to borrow 200k and the purchase would result in a 1/3 / 2/3 split.
How exactly would this situation pan out when B goes to borrow?
Is the Ownership Title and Mortgage title tied together?
When purchasing the house, would B borrow 300k with A and then A pays 100k into the mortgage?
Or is it as simple as B taking out a 200k mortgage, A hands over 100k and the Ownership Title divided into 2/3, 1/3On the same Subject however a different example. Would I be allowed to buy a House/Land/Whatever and sign over a % of it to someone else as Tenants in Common? Still taking on the entire loan and just “giving” away a %
Its all up to you. Just bear in mind the loan will have to be in the name of the person on title. If both on title, then both on the loan.
You can have an agreement drawn up to cover the deposit – this is essentially a trust arrangement.
Terryw
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Ah ok cool thanks. Clears up a few things.
The reason I ask is in response to a question I asked a while back about my parents house but I will post again since the situation has changed.
Mom and Dad both own the family home with a 100k loan currently owing. They’re getting divorced and have to figure out how to split the home. Mom wishes to keep, Dad wishes to sell. Dad is willing to take 100k which mom can’t afford, but I can.
Since Dad is selling “his half” he expects me to receive 50% of the house with a 100k loan.
Is there any way we could set it up so that Mom and I own the house as Tenants in Common?
Ideally I would take out my own loan, however my understanding is that the current loan will have to be extended 100k with both Myself and my Mom on the loan.
The reason I would prefer my own loan is so that I could pay it off early as well as keeping repayments “fair” (I don’t want her to pay extra but only benefit 50% and vice versa)
CJ, whats the place worth?
Terryw
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say its worth $500,000.
Just think of it as a sale of the property and then repurchasing it.
Assuming they will split it evenly, that means your dad’s share is worth $250,000, less his share of the loan of $50,000 = $200,000.
Same with your mum.
Now your dad will gift you this $100,000 of his $200,000 and you buy the same property with your mum. You have $100,000 equity and your mum has $200,000 equity with a combined loan of $200,000.
Maybe you could split the loan in 2 and have 2 separate loan accounts of $100,000 each.
Terryw
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Originally posted by Terryw:say its worth $500,000.
Just think of it as a sale of the property and then repurchasing it.
Assuming they will split it evenly, that means your dad’s share is worth $250,000, less his share of the loan of $50,000 = $200,000.
Same with your mum.
Now your dad will gift you this $100,000 of his $200,000 and you buy the same property with your mum. You have $100,000 equity and your mum has $200,000 equity with a combined loan of $200,000.
Maybe you could split the loan in 2 and have 2 separate loan accounts of $100,000 each.
Thanks Terry, I’m still a little fuzzy on the details there but it does make sense. I will keep mulling it over in my head until it makes sense
In response to the last paragraph there “Maybe you could split the loan in 2 and have 2 separate loan accounts of $100,000 each.”, in such a case would each loan be liable only to 1 person, or if I paid off my 100k, would I then still be liable for Mom’s 100k?
Hello CJ
Glad to see that you are managing to work it out. I went back to your original post and thought that I would use your real figures together with Terrys example because I’m a little fuzzy about the end result of the example too.
You said the house which is jointly owned by your parents is worth $400K and has a $112K mortgage.
$400K – 112k = $288k so each parent has $144K in equity.
Your father is willig to sell you his half for $100K which means, as Terry has pointed out, that he is making you a gift of $44K.
In fact to be able to own the house fairly 50/50 with your mother you need to give your father the $100K for his share of the equity and take over half the mortgage from your mother.
What you are then getting is 1/2 the house worth $200K
And this is how it is paid for :-
$100K new loan you need to take out to pay your father.
$ 56K half of the existing loan
$ 44K gift from your father.If you want to keep your loans totally seperate from your mothers you may be able to take out a loan for $156K and pay them both out.
However it may be enough if you took out a seperate loan for $100K which you could pay off quicker if you wanted to and just simply paid the original loan 50/50 with your mother.I think both those options are possible and someone like Terry would be able to help you in setting up the loan correctly so as to keep the parts seperate.
Hope this has not confused you even more. [biggrin]
ElkaOriginally posted by elkam:Hope this has not confused you even more. [biggrin]
Elkalol, only the tiniest bit. In your example I am taking out my own loan of 100k to pay out my dad. Will the banks allow me to do that?
After talking with my Mortgage Broker, I was under the impression that lenders would only allow one loan on the home. (Maybe I’m talking to the wrong guy eh?)
Before anything else I must thank both Terry and Elka for their time. You guys have been an enormous help and must be commended for the time and wisdom that you both commit to this forum.
CJ
Would be ditching your MB. Think Terry is you man and has explained it very well as usual.
Cheers
Richard Taylor
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Of cause Terrys explination was 100% correct and clearly explained, as always.
However it did not result in a 50/50 ownership of the house. To do that you need to take over half the current mortgage.
Cheers
ElkaIts confusing isn’t it. I thought my eg did result in 50/50 ownership with the dad gifting a portion to CJ. I will have to think about it again and repost.
CJ, i think every lender will require that both loans be in both names. ie you will be responisble for the whole mortgage. But you could split them in two and you pay into one and mum into the other. each paying at their own pace – but each loan will have both names.
And thanks to my number one fan of late, Richard!
Terryw
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Originally posted by Terryw:say its worth $500,000.
Just think of it as a sale of the property and then repurchasing it.
Assuming they will split it evenly, that means your dad’s share is worth $250,000, less his share of the loan of $50,000 = $200,000.
Same with your mum.
Now your dad will gift you this $100,000 of his $200,000 and you buy the same property with your mum. You have $100,000 equity and your mum has $200,000 equity with a combined loan of $200,000.
Maybe you could split the loan in 2 and have 2 separate loan accounts of $100,000 each.
Hello Terry
Yes, it is confusing. Your last post sent me back to my calculations to see if I was making a mistake in logic . However, I think not?.
Using your words above
Mum will have $200K equity and $100K loan = 3/5th of $500K
CJ will have $100K equity and $100K loan = 2/5th of $500KTo make it 50/50 CJ needs to take over half the current loan to give:-
Mum will have $200K equity and $50K loan (just as she has now)
CJ will have $100K equity and $150K loanCJ’s $100K equity is the gift in your example.
CJ I noticed from your first post on this thread that the mortgage has now been reduced to $100K instead of $112K as per your original question on the other thread. So the figures should be:-
$400K – $100K = $300K = $150K equity per parent
Your father will sell you his share for $100K in fact gifting you $50K
So the new figures look like this.
you get 1/2 the house worth $200KAnd this is made up of :-
$100K new loan you need to take out to pay your father.
$ 50K you are responsible for half of the existing loan
$ 50K gift from your father.or to put it in the same format as Terrys example
Mum will have $150K equity and $50K loan (just as she has now)
CJ will have $50K equity and $150K loanYour $50K equity is the gift from your father.
I hope I didn’t give anyone a headache with all this. [biggrin]
Elka
Thanks Elka, that sounds correct
Terryw
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Awesome. Thanks for this guys, I’ve printed out the replies and given em to my Parents to read through and decipher on their own (it all makes sense to me now, but I don’t want to “force” any views onto them).
I now have a new question here.
Assuming that we can’t get 2 separate loans, but can get the 1 loan with 2 accounts, what kind of flexibility would I have with my account?
Would I be able to ask for my account to be IO with offset? (I assume no though)
Also for Tax purposes, if my siblings were to pay board would I be able to treat my Account as if it were an IP loan (and hence any costs tax deductible?)?
Yes, you could have 2 loans, and an offset against one of these. Most lenders only allow one offset account.
Terryw
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