Buying property with parents Checklist and Benefits
It cannot be denied that buying joint property with parents is one of the most important and emotional decisions that you have to come across in your life. And in this scenario, you definitely need to be extra cautious. It happens a lot of times, that after even being careful to all the important factors, different clients incur certain loss and the major problem in India is people are not really open in discussing issues of inheritance and emotions. Thus, the buyer is very much sensitive in discussing such topics to professionals.
You need to remember that discussing about the inheritance issues before buying a joint property with parents is a much more sensible decision that facing legal issues and hassles after you have already purchased it. The number of young professionals who do rely on their parents’ finances for buying their first property has increased to a huge extent and presently more than two thirds of first time buyers cannot afford in buying a property single-handedly. Now, before we delve deep into the different actors to consider for buying joint property, you need to understand why joint property purchase is important for you. Unless you are not sure about the “Why”, you won’t have any valid reason or justification of buying joint property.
Some common objectives are as follows:
Parents have been pooling money for purchase. In case if one of the parents is a co-applicant for a home loan, then it enhances home loan eligibility. In such instances, any one of the parents needs to be the co-owner. This property will be purchased in the name of your parents and no one can stop your parents for staying in the house. And, the property can be used for different purposes by your parents, like selling, maintaining or renting.
These are some of the reasons why a joint property is purchased. But most of the times the decision is emotional. In this article we are not going to state in favor or against of joint property purchase, but we are going to provide you some essential factors that need to be considered since these factors are definitely going to impact you financially in future.
An alternative scenario
But what happens when the parents are not able to offer any loans or money for purchasing a joint property. In such situation, a joint property can be attained if parents help by offering a part of their present property as collateral. They can also opt for investing money within their child’s mortgage lender or agreeing in a joint mortgage where their child shall be completely responsible for the repayments. This might not be a direct cash help for buying a joint property, but this definitely allows loan or mortgage allowance for the individual who is looking to purchase a joint property.
Yes it is true that these situations come with financial strings attached, for instance, the lender might call the security given by your parents if you fail to make timely repayments.
What are the options for parents?
In a joint purchase of property there are certain options that a parent can have which are as follows:
When it is about buying a property, there are different forms of guarantee types, but all of them effectively means that the buyer, be it the child or the parent, shall assume responsibility for loan if any one of them defaults. It is very unfortunate that a huge number of people do not realize if their child fails to make timely repayments for the loan, then the bank, lending party or any other financial institutions from where the loan has been taken, have the complete right to demand full repayment from their parents. And if they also can’t pay the loan, then the assets shall be seized by the organization.
Buying the property yourself and then leasing it to your child
This is a much better option than becoming a guarantor. This is a good option for increasing the asset portfolio while offering your child a place to stay. For the parents who are living in the outskirts of a proper city, this option is really feasible. Most of such parents’ children need to be on the city for education and professional purposes, so they purchase an apartment as an investment and their children cover the repayment by clearing of the rents periodically. The only downside is this is not a direct help for buying joint property unless you have been subsidizing the rent so that your child is able to deposit for future.
Now that we have gone through the objectives of joint property purchase with your parents, there we are going to discuss about certain factors that can help you and your future generations through this purchase.
Joint home loan is must:
It is a fact that a huge number of buyers are not aware regarding the joint home loan for buying joint property. It is absolutely not possible that a property is having a joint name but the home loan is provided to a single buyer. For any form of joint property, the home loan is a joint one. But it is important to check the criteria and requirement, because in case of husband-wife, it is easy to attain a joint home loan, but in scenario of brother-brother, father-son or any other form of blood relations, there are a lot of ifs and buts.
Non earning co-owner:
It is not advisable to include the names of a non earning member of your family as a co-owner, be it your father or mother. Because instead of helping them, you are creating a trouble for them. This is specifically true for the home loans. God forbid if any unfortunate incident causes the death of the earning member of your family then the whole burden of repaying the loan shall be upon the shoulders of the non earning co-owner.
Inheritance: It cannot be denied that a huge number of buyers are not aware of the fact that unless any owner of a property leaves any will behind, every one of the legal heirs have equal stake within the assets. It needs to be explained in simple terms. For instance, a parent is having three children and one of them buys a joint property along with his/her parents. Now, the parents have 50% right within the newly purchased property and after the death of parents, the child who purchased the joint property shall have 80% right of the property and the rest 20% shall be divided among two other siblings. This is the actual legal procedure that needs to be taken care of. This is the reason, for avoiding family problems in case living together does not work out, it is essential to work out a WILL by setting out the proportions that shall be owned by each of the children. Because family disputes related to a property is not a new thing in India and there are cases that have been pending from a long time. And regarding the capital tax gains, if you are agreeing to sell up having lived in the home then there is no type of capital gains tax liability involved. But there might if you have inherited a share in the home and you are looking to sell it.
Home loan EMI
A major misconception that prevails in our country is that the person, who is completely repaying the home loan, comprises of the authority to claim the entire property. This is not at all legally true. Considering the situation of a person who is looking to buy joint property with parents, takes a home loan and cleared 100% payment of the EMI. But after some time there were certain differences between the person and parents, and his parents decided to change the will and inherit their share to their daughter. The person who took the loan challenged the will, but since the 50% part of the property was in the name of parents, court shall definitely decide in favor of parents and that person shall not attain his parent’s share. Thus, it is evident that if a person is paying off 100% EMI of the loan, he/she owns the share of their parent’s property.
Term insurance against home loan
It has been observed for majority of joint property purchases, both the owners avail home lone protection plan but they are not aware of the fact that in case of any unfortunate incident, the insurance provider shall only clear the home loan of deceased in proportion to ownership within property. The general misconception is entire home loan shall be cleared, but that is not true, so it is better to opt for term insurance.
This is directly related to the term insurance. For instance, if a person opts for a joint property purchase with parents, but due to any unfortunate incident, the person dies. In such instance, after the death, according to revised shareholding, the property share will be 66.6% to parents, 16.6% to wife and 16.6% to child. Now the question that arises is who is going to take the responsibility of clearing the home loan. Now, if that person takes up term insurance, that also does not offer any direct solution to the problem. Because, wife can claim that she and her child owns 33.33% of the property so why should she clear the loan and the same logic can be applicable for the parents. So, these situations are really complicated to resolve due to trust issues and this is a harsh truth in present times.
In case of joint property purchase with parents or any blood relation, it is essential to research for legal implications in detail. This article is definitely going to give you different legal information for such purchases but at the same time you need to consult an experienced professional while dealing with such matters.
It is a fact that the decision of buying a joint property with parents is generally taken up by people when they are 30-35 years and parents are above 65. In few cases it was observed that to maintain the financial safeguard the buyer included parents as the co-owner but also executed WILL in his favor. But in such cases, the authenticity of the WILL shall be definitely challenged. Now, in this case one of the major safeguard that can be taken up by people opting to buy joint properties is getting the medical fitness certificate before the execution of WILL.
A lot of parents are looking to help their children by leasing a property to them, with the intention of eventually passing their property without the hassle of “Probate” after their death. But at the same time, they fail to realize that putting their children’s name on the deed passes the title of the property to them and new joint tenant shall become the immediate co-owner which creates a great deal of risk especially for old people who have cleared off their homes and are living on retirement income.
Time and cost involvement:
Buying a joint property along with parents is definitely a good decision, but at the same time you need to consider the time and cost. In a joint property all the other factors starting from mutation, land tax, electric bills, water bills and telephone bills are in a joint name. And to complete all the formalities you have to take your parents along with you. For them it might become troublesome considering their age. Also in case of inheritance, it will be really hassle for you to change and transfer all the details again back to your name. It is also very much costly to carry out the transfer of names.
Considering all the above mentioned factors, you need to take up the decision of a joint purchase very carefully, and if properly executed, it will be a fruitful decision for you.
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