What obstacles will I face trying to mortgage a house I don't live in?
December 25, 2011 3:45 PM Subscribe
What obstacles will I face trying to refinance my mom's house under my name without living there? I've heard that financing a home is "tricky" when you're not the one living in it. Does anyone have first hand experience working around interest rate penalties? Does it matter that the home occupant is a blood relative? Or that the mortgage would be a refinance and not a first-time purchase?
My mother is getting older and managing her own finances is becoming hard for her. She currently owes about $30,000 on her house, and I'm worried that this is placing an undue burden on her. I want to start paying her "rent" for her, but in exchange would like to get my hands on some of the equity she has built up-- getting the house in my name and refinancing so I can pay off higher interest rate student loans and put the money I save into home improvements for her. She is completely on board with this idea, as her credit is no longer good enough to obtain a refinance on her own. The catch is, I live about 2,000 miles away.
My mother is getting older and managing her own finances is becoming hard for her. She currently owes about $30,000 on her house, and I'm worried that this is placing an undue burden on her. I want to start paying her "rent" for her, but in exchange would like to get my hands on some of the equity she has built up-- getting the house in my name and refinancing so I can pay off higher interest rate student loans and put the money I save into home improvements for her. She is completely on board with this idea, as her credit is no longer good enough to obtain a refinance on her own. The catch is, I live about 2,000 miles away.
(If you're not familiar with the concept of non-cash income, here's is an IRS brief on it.)
Note the salient point: "Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties."
posted by dfriedman at 4:02 PM on December 25, 2011 [2 favorites]
Note the salient point: "Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties."
posted by dfriedman at 4:02 PM on December 25, 2011 [2 favorites]
Talk with a qualified elder law attorney in her area (not yours). Find a referral here. There may well be ways to do what you want to do.
dfriedman is right that the tax implications have to be considered. But he is talking about income tax, which will not have any relevance at all to this situation. Gift taxes have some relevance, but each person has (this year and next) a $5 million exemption. Given your comments, I suspect that exhausting that exemption will not be a problem. Capital gains taxes have some relevance, if you become a joint owner with her and sell the house after she is gone. All this needs to be examined by and discussed with a qualified advisor.
posted by yclipse at 4:57 PM on December 25, 2011
dfriedman is right that the tax implications have to be considered. But he is talking about income tax, which will not have any relevance at all to this situation. Gift taxes have some relevance, but each person has (this year and next) a $5 million exemption. Given your comments, I suspect that exhausting that exemption will not be a problem. Capital gains taxes have some relevance, if you become a joint owner with her and sell the house after she is gone. All this needs to be examined by and discussed with a qualified advisor.
posted by yclipse at 4:57 PM on December 25, 2011
If you have any siblings, they may be the biggest obstacle you face in terms of taking over your mother's mortgage. Otherwise, I have just refinanced my house with some complicating factors thrown in and I can tell you one big concern of the lender will be who has title to the house. If your name is not on the title you will have a hard time getting a loan at any rate. You may want to look into being a cosigner on a refinance. Normally cosigning a loan is a bad idea, but since you are already planning on taking complete responsibility for the loan the usual warnings may not apply. But in any event, this sounds like an area where good accounting and legal advice will pay off in the long run.
posted by TedW at 6:30 PM on December 25, 2011
posted by TedW at 6:30 PM on December 25, 2011
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And, you can't just acquire the equity that someone else has built up without paying some sort of income tax on it. You're essentially asking your mother to gift you her interest in the house; that is non-cash income to you.
Which, of course, is taxable.
Don't do this without retaining the services of a qualified accountant who can apprise you of the tax implications of doing this. It is more complex than you propose.
(Assuming you live in the US; please clarify if that is not the case.)
posted by dfriedman at 3:51 PM on December 25, 2011