5 years ago, I split the down payment of a house with my brother since we wanted to keep the equity. We agreed to both have a 50% interest in the house (i.e. when selling, proceeds get split 50/50). I was going through a divorce so everything had to be in his name, both deed and mortgage. I wrote him a check for half the down payment and have been paying him half the mortgage every month.
He’s moving out this year and is interested in refinancing so he can put the money towards his new home. I’d also like to refinance to pull money out. Since I’m staying in the house, I figured it would be easiest if I just buy it from him since the loan rates are better for purchasing vs. refinancing, and he can 1031 his money towards his new home. I’m pretty sure if we did a loan assumption, quitclaim deed, and then I refinanced, it would cost more. Also he has a VA loan which needs a 6 month waiting period after transfer of deed to assume, which is a no-go for us.
I’m considering options for the best way to accomplish this. I figure I can just submit a new RPA to him as a normal buyer, and he signs it as the seller. We agree to an addendum that will set the final sale price equal to the appraised value (like an appraisal contingency that goes both ways). Send the executed RPA to the lender and title and call it a day. I would then front the down payment, and after he receives the final disbursement he will send half back to me.
Alternatively, I’m considering ways we could roll “my” equity into seller credit, because if I could avoid fronting the down payment it would make life immensely easier. So let’s say the appraised value is $500k and I’m putting 20% down (100k). The remaining mortgage balance is $300k, so he would normally be receiving $200k (ignoring closing costs for simplicity). We write an addendum for $100k seller credit, and he gets his $100k in the end. So I essentially put in 0 cash to close, and math wise the 50/50 split works out and it would be super convenient, but I have my doubts if a lender would accept that kind of RPA. Thoughts?