Mortgage Update

Looking to Buy a Home with Family or Friends? Here’s How…

Buying property in the Bay Area often requires a “team” approach: parents, siblings and friends all pooling resources.

What do you need to know to successfully navigate a mortgage in these situations? How can you plan for unexpected changes in your “team” after you own property together? Here are some things to consider depending on your scenario:

  • Using gift funds. Most mortgage products allow funds for down payment to come in the form of a “gift” from family members. A formal gift letter indicating that funds do not have to be repaid is required to be signed by both the gifter and the giftee. The current IRS “gift exclusion” limit for 2017 is $14,000. Gifters providing more than $14,000 should consult their tax professional ahead of time to understand any potential tax implications for gifting funds.
  • Unmarried individuals purchasing together. Lenders do not require that co-borrowers be married or even related in any way. Joint applications are common and straightforward, but remember that it is one loan that all parties are responsible for. Borrowers typically cannot be removed from the loan unless the mortgage is refinanced. Ownership can be taken as “Joint Tenants,” indicating that all parties own 100 percent of the property together, or “Tenants in Common,” which allows for each party to own specific percentages that can be passed on to heirs separately. A real estate lawyer can be helpful in determining the right way to hold title and can set up a Tenant in Common agreement so that all parties are clear on their rights and obligations.
  • Community property rights. Sometimes one spouse qualifies for a higher loan amount without the other spouse on the loan application. Most conventional mortgages will allow this as well as the couple to determine if both people or just one person will go on title (ownership rights). Community Property states require that the spouse who isn’t on the loan either go on title or sign a quit claim deed to release any claims on the property. A family law attorney can advise you on the risks of relinquishing ownership rights of a property purchased by a spouse. Married persons purchasing a property on their own or with another individual need to remember that their spouse has a claim on that property unless they sign a quit claim at closing.
  • Co-signers. Parents or grandparents are often willing to add their financial strength to a loan application to help their descendants qualify for a mortgage. Co-signers are considered full borrowers and undergo the same level of scrutiny. Additionally, they are equally responsible for the mortgage and are required to “go on title” — meaning they share ownership. A real estate attorney or an estate attorney can be helpful in determining the appropriate way to hold title. Co-signers need to understand that the mortgage will be reflected on their credit and payments will most likely be considered in any applications for credit they make in the future.



To get your “team” pre-approved for a mortgage, please contact Melissa Milton or Julia Demeter at Commerce Home Mortgage.

Melissa Milton: 510.542.2061

Julia Demeter: 510.520.9700