Buying a Home With Family: How to Protect Everyone

1. The mortgage loan

The promissory note identifies who is legally obligated to repay the debt.

In Texas, the deed of trust generally creates the lien that secures the loan with the property.

Anyone who signs the repayment obligation may be responsible for the debt according to the loan documents. If a payment is late, the credit history of every obligated person may be affected.

2. The property deed

The deed identifies who legally receives ownership of the property and how that ownership is recorded.

In everyday conversation, many people use “title” and “deed” as if they mean the same thing. Title is the legal concept of ownership; the deed is the document used to transfer and record that ownership.

Being responsible for the loan does not automatically guarantee the same percentage of ownership. Depending on the loan program and the structure approved by the lender, a co-signer could accept responsibility for the debt without receiving an ownership interest.

It may also be possible for someone to hold an ownership interest without being obligated on the loan, but the lender must approve the structure and the documents must be prepared correctly.

3. The co-ownership agreement

This agreement establishes the rules between family members:

• Who contributed the down payment.

• What percentage each person owns.

• Who will live in the home.

• Who will pay the mortgage and other expenses.

• How decisions will be made.

• What happens if someone wants to leave.

• What happens if someone stops paying.

• How a sale, incapacity, divorce, or death will be handled.

The loan documents protect the lender. The deed identifies the owners. The co-ownership agreement organizes and protects the relationship between the family members.

They serve different purposes.

Co-signing is not providing a recommendation or serving as a personal reference.

A co-signer becomes responsible for the obligation under the documents signed, even if that person never lives in the property and someone else promised to make every payment.

Before signing, ask:

• Will I appear on the promissory note?

• Will I appear on the deed?

• Will I receive a legal ownership percentage?

• How will this debt affect my credit?

• How will it affect my ability to purchase or refinance another property?

• Is there a way to release me from the loan later?

• What would have to happen for that release to become possible?

The debt may appear on your credit reports

The mortgage may appear on the credit reports of the people obligated to repay it and may affect their ability to obtain other credit.

Certain loan programs may allow a lender to exclude a particular monthly payment from a borrower’s debt-to-income ratio if another person can document making the payments on time for the required period. However, this depends on the loan program, documentation, and lender’s analysis.

Never assume the debt will be ignored simply because someone else makes the payment.

Late payments may affect you

If a payment is reported late, the delinquency may appear on the credit history of everyone obligated under the loan.

Saying “I never lived there” does not eliminate an obligation you signed.

Getting off the loan may be difficult

A family disagreement does not require a lender to remove someone’s name.

Leaving the obligation generally requires selling the property, paying off the loan, refinancing, or completing a lender-approved release or assumption if the loan and program allow it.

A family agreement may require someone to attempt a refinance by a certain date, but it cannot force the lender to approve new financing.

Any planned exit date should therefore include an alternative if the remaining family member cannot qualify.

The appropriate structure depends on who is buying, who will occupy the home, who is contributing funds, and what the family wants to happen when someone dies.

The following explanations provide general information. They are not instructions for preparing a deed.

Co-ownership without automatic survivorship

Under a common co-ownership structure, each person owns the interest identified in the applicable documents.

The percentages may be equal or different. When an owner dies, that person’s interest may become part of the estate and pass according to a will or the applicable inheritance laws.

A co-owner may also have legal rights that affect the others. In Texas, a joint owner may seek partition of the property. Depending on the circumstances, this could result in a court-ordered division or sale.

Co-ownership with a right of survivorship

A right of survivorship is intended to transfer a deceased owner’s interest to the surviving owner or owners instead of distributing it through the ordinary probate process.

In Texas, families should not assume this will happen automatically. The Texas Estates Code provides for written survivorship agreements between joint property owners. Married couples who want survivorship rights for community property are also subject to specific requirements.

The wording and execution of the documents matter. A qualified attorney should confirm that the structure produces the intended result.

Community property for married couples

Texas is a community-property state, but that does not mean every question involving ownership, inheritance, and survivorship is resolved automatically.

How a property is classified may depend on when it was acquired, the source of the funds, the documents signed, and other circumstances.

A married family’s residence homestead may also require the other spouse to participate in a sale or lien transaction even when only one spouse appears as the record owner, subject to applicable legal exceptions.

One person holds title while others contribute

One person appears as the legal owner while other family members contribute money or live in the home.

This arrangement may seem simple, but it becomes dangerous when contributors believe their payments automatically create ownership rights.

Paying part of the down payment, mortgage, or renovation costs does not necessarily guarantee a percentage of the property. If the family intends to create a loan, ownership interest, or reimbursement right, it should be documented correctly.

An LLC or trust

An entity or trust may be appropriate for certain investments, estate plans, or complex ownership arrangements.

It may also affect residential financing, insurance, liability, taxes, and eligibility for certain exemptions.

Do not transfer a home to an LLC or trust simply because someone said it “protects everything.” Consult the lender, insurance company, CPA, and attorney first.

To qualify for a general residence homestead exemption in Texas, an individual generally must have an ownership interest and use the property as a principal residence.

When multiple people own the home and not everyone occupies it, eligibility and the applicable exemption may depend on the ownership percentages and each person’s circumstances.

Do not assume everyone will receive the entire exemption or that adding names to the deed has no consequences. Confirm the structure with the appraisal district and a qualified tax or legal professional.

The best time to write the rules is before making an offer, while everyone is getting along.

These are the essential questions.

1. Who is contributing what?

Document each of these separately:

• Down payment.

• Earnest money.

• Closing costs.

• Inspection and appraisal.

• Moving expenses.

• Initial repairs.

• Furniture and appliances.

A larger contribution does not automatically create a larger ownership percentage. The deed and agreement should clearly reflect what everyone decided.

If a contribution must be reimbursed before dividing any proceeds, that rule should be in writing.

2. Who will pay each monthly expense?

Identify who will be responsible for:

• Principal and interest.

• Property taxes.

• Insurance.

• Homeowners association fees.

• Utilities.

• Maintenance.

• Major repairs.

• Insurance deductibles.

The family should also decide whether payments create a reimbursement right, change ownership percentages, or simply represent the cost of occupying the property.

Not every part of the mortgage payment creates equity. A portion may cover interest, property taxes, and insurance. The agreement should distinguish between paying housing expenses and receiving credit for principal reduction.

3. How will decisions be made?

Identify which decisions require everyone’s approval:

• Refinancing.

• Obtaining a loan against the equity.

• Completing major renovations.

• Renting a room.

• Allowing another person to move in.

• Selling the property.

• Changing its use.

The agreement should also establish a method for resolving a tie.

4. What happens if someone wants to leave?

The agreement may include:

• An independent appraisal.

• A method for calculating net equity.

• A right of first opportunity for the remaining owners to purchase the interest.

• A deadline for obtaining financing.

• A method for selecting an agent and selling if nobody can purchase the interest.

• Allocation of the selling expenses.

• An alternative if the refinance is not approved.

“We will figure it out later” is not an exit plan.

5. What happens if someone stops paying?

Determine:

• How much time the person has to correct the missed payment.

• Whether the other owners will cover it.

• Whether additional payments will be reimbursed.

• Whether interest will apply.

• Whether the final distribution will be adjusted.

• When a sale could be triggered.

A private agreement does not eliminate anyone’s obligations to the lender, but it can establish responsibilities between family members.

6. What happens if someone dies or becomes incapacitated?

Without a valid survivorship structure, an ownership interest may pass to heirs through a will or the applicable inheritance laws.

The family could eventually share ownership with the deceased person’s spouse, children, or other heirs.

Families should also consider:

• Wills.

• Powers of attorney.

• Medical directives.

• Life insurance.

• Transfer-on-death planning.

• The ability to continue making mortgage payments.

A real estate or estate-planning attorney should coordinate these documents with the deed and co-ownership agreement.

Two brothers purchase a $450,000 home where they plan to live with their parents.

Brother A contributes $70,000 toward the down payment.

Brother B contributes $20,000 and agrees to make the entire monthly payment because he will live in the home.

Both participate in the mortgage, and the deed gives each brother a 50% ownership interest.

Five years later, they decide to sell.

Brother A says:

“I should receive my $70,000 contribution back first.”

Brother B responds:

“I made 60 monthly payments, so my share should be larger.”

Neither person is necessarily lying. The problem is that they never established:

• Whether the original contributions would be returned first.

• Whether the monthly payments were housing expenses.

• What portion of the payments would receive credit as principal reduction.

• How repairs would be divided.

• How any gain or loss would be allocated.

• What would happen if the property decreased in value.

An agreement could establish, for example, that documented initial contributions are reimbursed under a specific formula, that only certain principal payments receive credit, and that the remaining equity is divided according to defined percentages.

An attorney should prepare or review the formula. The important point is to establish it before purchasing.

There is no single structure that works for everyone, but families may discuss these options with the appropriate professionals.

Intentional multigenerational housing

The family purchases a home with features that support living together:

• A first-floor bedroom and bathroom.

• A suite for parents.

• Two living areas.

• Step-free access.

• Sufficient parking.

• Privacy for each generation.

Ownership, payments, occupancy rules, and any rental arrangement should be documented. A rental agreement between relatives may have legal, tax, insurance, and financing consequences that should be reviewed.

Parents helping with the down payment

Depending on the program and circumstances, parental assistance may be structured as a documented gift or a properly disclosed loan.

A mortgage gift requires documentation and must state that repayment is not expected. If the parents expect to receive the money back, it should not be represented to the lender as a gift. It must be disclosed and structured according to the loan program’s requirements.

Adding the parents to the deed is not always necessary and may create tax, estate-planning, credit, and exemption consequences.

A co-signer or non-occupant borrower

Some mortgage programs allow a co-signer or borrower who will not live in the property.

Requirements vary by loan type. That person should understand whether they will have ownership rights, responsibility for the debt, and how the mortgage could affect a future purchase.

A family plan completed in stages

A family may decide to purchase one property first and prepare for a second purchase later.

The plan should identify:

• Who will own the first home.

• Who will build credit for the second purchase.

• How rent and payments will be documented.

• Which funds belong to each person.

• What timeline and conditions will determine the next move.

Living together does not automatically create equity for everyone. Ownership and financial rights must be documented.

Take this list to the family conversation:

1. Who will be on the mortgage?

2. Who will appear on the deed?

3. What ownership percentage will each person receive?

4. Who will occupy the property as a primary residence?

5. Where will the down payment come from?

6. Are those funds a gift, loan, or investment?

7. Who will pay each expense?

8. How will additional contributions be credited?

9. Which decisions require everyone’s approval?

10. What happens if someone wants to sell?

11. What happens if someone stops paying?

12. What happens if someone divorces, dies, or becomes incapacitated?

13. How will the property’s value be determined?

14. What happens if nobody can qualify to refinance?

15. Which professionals need to review the arrangement?

If the family cannot discuss these questions before buying, resolving them afterward will be much more difficult.

I created the Family Homebuying Guide, which includes:

• The differences between the mortgage, deed, and co-ownership agreement.

• Questions the family should answer before buying.

• A worksheet for recording contributions.

• A framework for discussing payments and repairs.

• Questions to take to the attorney and lender.

The guide is free and does not obligate you to purchase a home.

Call or text me at (469) 441-8890, or request it at VeronicaYeary.com.

P.S. If multiple generations already live together and are considering purchasing another property, begin with strategy: how much equity exists, who can qualify, who should purchase first, and how each person will be protected.

I will gladly help you review the overall plan and coordinate the questions your lender, attorney, and tax professional must answer.

This article provides general information and does not constitute legal, tax, financial, credit, or mortgage advice. Ownership forms, inheritance rights, obligations, and eligibility for loans or exemptions depend on the documents, individual circumstances, and applicable law. Consult a Texas real estate or estate-planning attorney, a licensed mortgage professional, and a tax professional before signing or transferring any rights.

Texas Estates Code, Chapter 111, Right of Survivorship Agreements: https://statutes.capitol.texas.gov/Docs/ES/htm/ES.111.htm

Texas Estates Code, Chapter 112, Community Property With Right of Survivorship: https://statutes.capitol.texas.gov/Docs/ES/htm/ES.112.htm

Texas Property Code, Chapter 23, Partition: https://statutes.capitol.texas.gov/Docs/PR/htm/PR.23.htm

Texas Comptroller, Property Tax Exemptions: https://comptroller.texas.gov/taxes/property-tax/exemptions/

Fannie Mae Selling Guide, Guarantors, Co-Signers, and Non-Occupant Borrowers: https://selling-guide.fanniemae.com/sel/b2-2-04/guarantors-co-signers-or-non-occupant-borrowers-subject-transaction

Fannie Mae Selling Guide, Personal Gifts: https://selling-guide.fanniemae.com/sel/b3-4.3-04/personal-gifts