Oct 16, 2024
As of July, the median U.S. home list price was $439,950, according to Realtor.com.
However, even that price tag is too much for many Americans, especially given the current mortgage rates. Even with a recent dip, the average 30-year mortgage rate, as of Oct. 16, was still sitting at 6.08%, according to Freddie Mac.
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Which is why many younger Americans are turning to the Bank of Mom and Dad for financial aid. According to a study from Credit Karma, 38% of Gen Z homeowners received financial assistance from their parents in the last year.
Such was the route taken by Leslie Sherman and Conrad Useldinger, a San Jose couple who found themselves priced out of their local housing market. As reported by Realtor.com, the couple turned to Leslie’s parents for help closing on an $850,000 condo.
While this may seem steep, the median home price in San Jose is a staggering $1.46 million — with homeowners needing to earn a whopping $$361,000 (at least).
As a result, Leslie’s parents became co-owners of the property, with all four names on the deed. Leslie and Conrad own 25% of the property, while her parents own 75%.
If you’re thinking of entering into a similar arrangement, there are some pros and cons you should consider first.
The pros and cons of owning a home with family
Co-ownership can take on many different forms. In some cases, it could mean occupying the same space together and splitting everything evenly — although that can be good or bad depending on how much you value privacy.
In Leslie’s case, her parents paid $650,000 in cash toward the condo, leaving her and her partner with a $200,000 mortgage and a $1,297 monthly payment at a 6.75% interest rate. The couple also pays HOA fees and property taxes. They’d also cover any standard repairs.
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As a co-owner, there’s a financial upside: if the home gains value and everyone agrees to sell, everyone stands to profit.
However, there can be some drawbacks to owning a property with family. Because Leslie’s parents “are not controlling” (in her words), she felt comfortable entering into this type of ownership arrangement with them.
But if your parents or adult kids have strong opinions and clashing personalities, buying a home jointly could mean not ending up with the property you actually want — or buying a property you’re less comfortable owning.
Plus, you could run into trouble if you co-own a home and can’t come to an agreement about selling it. If one of you decides they’re ready to sell when market conditions aren’t optimal, you risk losing money. Also, in this situation, if someone opposes the sale and has the legal right to do so, you’re trapped.
If you’re the adult kid in the situation, you should also consider what funds your parents are using to help you buy a home. For instance, will it eat into your inheritance?
Remember, too, that any time family and finances mix, there’s the potential for soured relationships. A disagreement over a home improvement or sale could cause more strife than anyone involved may have bargained for.
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What to consider before buying a home with family
For starters, if you’re the parent in the situation, make sure you can afford to co-own another property. Speak to your financial adviser before making any major money moves.
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Sit down with your kids (and their partners) to nail down exactly what it is they’d need help with: is it just assistance with the downpayment or are they hoping you’ll go in as co-owners?
The last thing you want to do is sacrifice your retirement savings. If you don’t have money set aside for an arrangement similar to what Leslie had with her parents, then you should reconsider.
Another option, if feasible, is to outright buy another property and rent it out to your kids. It could be a great way to expand your investment portfolio while helping your child land on their feet. In some cases, parents stash away the rent money so their kids can eventually buy property.
Should you decide to move ahead with co-ownership, however, it’s important that all parties protect themselves in this situation. In Leslie’s case, everyone sat down and put all the details in writing. They have a thorough contract that outlines who’s responsible for paying what, in addition to other essential details.
If you’re on the receiving end of getting help with a home purchase, you’ll need to know what costs you’re supposed to cover, and you’ll also need to know what happens in the event of a major repair or renovation. Plus, you’ll need to figure out what happens when one party wants to sell and the others feel differently.
The more specific your co-ownership contract or shared equity deal is, the less likely you are to run into issues down the road.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
