Can I buy my parents' house in a way that makes financial sense?
December 8, 2013 1:28 PM Subscribe
My parents have always struggled financially, living under crippling debt and never able to have an income able to match the bills, the biggest of which is their mortgage. I hate to see how difficult this situation is for my dad, and I want to help out for the sake of his stress level, and also because once he retires in a few years the math truly does not work out in their favor. I've been thinking of buying some land anyway, so I'm wondering if there is any feasible way to make this work for both my parents and me.
posted by anonymous to Work & Money (20 answers total) 3 users marked this as a favorite
The house is somewhere near the "upside down" line--I'm not sure exactly, but I believe that it currently has slightly more value than what is owed. I know that if it were purely an economic decision, without any factoring in of my desire to take care of my parents, it would probably be a no-brainer. I will never live in the city where the house is located, I don't have a house myself yet, and I can't afford to pay two full mortgages, and I will eventually inherit a third of the house anyway.
But I can't shake the feeling that there might be some way to make this work. Especially since there is the chance that my dad won't be able to pay the bills once he retires, thus bringing the house back upside down and turning the inheritance of the house into debt (or however that works... can banks pull from an estate upon the death of the debtor?) Furthermore, if things go badly for my parents finances, as I think is likely, it will be very hard for me to say "no" when the inevitable request for money to help out comes (as has happened before). My income is easily three times that of my parents, and I have additional savings and assets and no debt--how could I deny my own parents the money that would make such a big difference to them? At any rate, it may be in my interests economically to do this, as well as the huge gift it would be to my dad to have the burden of the mortgage removed.
The thing is I can't figure out the best way for this to go down. If the house was gifted to me, I would have to pay gift taxes, but the essential cost of the house would be whatever the remaining amount owed would be--right? So it would be like getting a house for half-price. Are there other tax considerations that I'm missing? I have excellent credit, so I wonder if a refinance would be possible in that situation to reduce the mortgage.
I think I could also buy it, but there are taxes there as well, for both me and my parents. And then there is the issue of what price would make sense. Would selling the house to me for $1 be possible, since technically the bank still owns it? Could I somehow buy the house for $1 and acquire the debt of the house as well? Or would it be better to buy the house for [$1 + (the remaining amount owed)]?
My dad would be happy to pay a monthly "rent" to me, if it was a good amount less than the full mortgage, and he would be glad that he is leaving an inheritance--something that doesn't matter much to me but which is very very important to him.
Some figures that may/may not be important: I estimate the house to be worth $400k with about half paid off. I have no debts and about $150k in stocks, which I am not going to mess with except in emergency or retirement. I'm hoping my parents have at the least another 30 years in them (I never knew my grandparents, I want my kids to). And there's no way I'll ever live in this house. But I've been wanting to buy a house as an investment (land value + ability to rent) but have been a little daunted by the process.