As a parent, you want your children to succeed in life. One way to help them achieve their financial goals is to invest in their future. Shared equity financing agreement is a relatively new financial tool that allows parents to invest in their children`s homes by sharing the equity in the property. This article will discuss shared equity financing agreement and how it works.
Shared equity financing agreement is an arrangement where a parent invests in their child`s home by providing a lump sum of money in exchange for a share of the equity in the property. The parent becomes a co-owner of the property, and their investment is repaid when the property is sold.
The amount of equity that the parent receives depends on the amount of money they invest and the value of the property. Typically, the parent will receive a percentage of the equity that is proportional to their investment. For example, if the parent invests $50,000 in a property worth $500,000, they will own 10% of the equity in the property.
Shared equity financing agreement is beneficial for both parents and children. For parents, it is a way to invest in their children`s future and provide financial support without giving away any money. For children, it is a way to get into the property market and access funds that they may not have been able to obtain otherwise.
There are some risks associated with shared equity financing agreement that parents should be aware of. The first risk is that the value of the property may decrease, which would decrease the value of the parent`s investment. The second risk is that the child may default on their mortgage, which could result in the parent losing their investment.
To mitigate these risks, it is important for parents to work with a qualified financial advisor and a real estate lawyer to ensure that all agreements are legally binding and protect their investment. Parents should also ensure that their child has a stable income and can afford to make mortgage payments.
In conclusion, shared equity financing agreement is a new financial tool that allows parents to invest in their children`s future by sharing the equity in their home. It is a beneficial arrangement for both parents and children, but it does come with some risks. Parents should work with a qualified financial advisor and lawyer to ensure that all agreements are legally binding and protect their investment.