Gift of Equity in exchange for freeing parents of Mortgage.

11 Replies

My parents are retirement age and my father has had to continue to work despite his declining health to pay off the remaining 100k of a refinanced loan they took. They want me to take over the loan and in exchange will take possession of the title for the house (I would likely inherit it anyway.) The house is worth about 500k now. I've never had a mortgage, I rent, and have little savings (less than 20k.) How can I free them of their payments while accessing the Equity for a loan to buy into an income property in my home city of Los Angeles (a duplex starts at 900k?) Also, If I could find a good ROI, how can I insure my parents can stay in the home and that I am able to accelerate my lack of savings. I have a California Real Estate license.

Assume the payments as consideration for an option to purchase the home at anytime for $300K. Use a mortgage to record the note against the property through a local RE Attorney. Now you have a piece of paper that is effectively worth 200K. You can sell it, borrow against it, leverage it to purchase your investment property that will then generate the cashflow to help make the payments. When the loan is paid off your parents will have $300k of equity and can remain in their home for the time being. @Tommy Carey

I guess the first, and honestly, most important thing, would be to shave that mustache. Second, are you going to be able to take over the mortgage of the home? Are they going to continue living in the home? You could probably do a Quit Claim deed to then own the property and you might be able to assume the mortgage. I am not entirely sure of all of the rules about that, but a mortgage broker in your area should know if it is allowed for your area, or you, or your parent's mortgage type. Then you may be able to access the equity with a Home Equity Line Of Credit (HELOC).

Good luck with it all! I hope this is able to launch your career into the real estate investing arena and that you are able to get rid of the mustache.

Hi. @Dave Passey  !   The moustache stays!   It’s my money maker. (Check out my IMDb http://www.imdb.me/tommydaycarey ).  I play a lot of cops.  Lol.

So, I'm trying to not take over the payments as they are like $1800 a month. The goal is to use very little if my own money in this investment. My parents only want the lack of payments. They only wish to stay in the house until they are "done." I was thinking a refi for 30 and paying much less as Id also be making a payment for the investment property. I don't really want to use my first time FHA on this small of a loan. Also, I'm hoping I can manifest a cap rate in a multi family that will beat the payments and more. Ideally I'd be able to refi down the line and keep investing in more and more my properties. Again, They would want to stay in the house. They are in Texas. I am in California.

@david 

@David Hildebrandt Is there a way to assume the payments for less than the amount they pay now?  Im not sure I follow.  Would they need to refi and I make the payments?   Do you mind fleshing his out a bit more for me?  Thanks.   

Both great ideas guys.   I apologize if my financial knowledge is offensive.   Your help is greatly appreciated.

@Tommy Carey Hi Tommy. Honestly I think your first move would be to talk to a knowledgeable mortgage broker and go through the options on a rate term refi or even a cash out refi. If you want lower payments now, close a quick rate term refi on a 15 or 30 year term, which will have very low payments since the balance is so low. You could tack on a a concurrent closing HELOC as well to go towards the new purchase and close them both together. Of course you could also just cash out in one loan everything you need for the new property. I work with lenders all day as a mortgage broker and would be happy to help you out further after seeing the whole package of what you are trying to accomplish. I am also a CA real estate agent so we can disused properties that you want advice on as well. Feel free to reach out. My office is in LA, let’s get coffee sometime.

@Tommy Carey   You should be able to get an owner occupied loan with better rates when refinancing your parents home.  Fannie Mae has an exception for occupancy when a son/daughter buys or finances a home for a parents who are unable to work or unable to afford the loan on their own, so you would not have to live there with your parents.

You will have to qualify for both their housing payment (the mortgage) as well as your housing payment (even if you currently rent), but the payments should be reduced quite a bit if there's just 100k remaining.  

I do know that Texas has some rules regarding cash out on owner occupied properties, but you would probably need someone licensed in Texas to explain those options to you.  

This would leave the option for an FHA loan open to you if you decide to buy a duplex in LA, and you would qualify as an owner occupant.

Assuming the owner occupied family loan works, should I wait until I have the investment property in my sights before executing the process?   Or should I seek a pre-approval situation?   I don’t want to be on the hook for payments if I don’t have an investment in place to cover some of the payments.   Thanks everyone for your input.    

I'm actually considering the same option and was looking for advice/suggestions on if it would be a good idea or not.  My parents are also nearing retirement age and were looking at selling their house to downsize and use some of the profit they got from the sale to pay off their credit card debt.  They currently owe $140,000 on a refinanced loan and the house is worth $300,000.  

I've been trying to get into REI by buying my first multi-family property but the market has been dry lately. The idea I came up with is to essentially buy their house for $200,000 at a lower rate giving them a profit of $60,000 for them to use to help pay off their credit card and get to stay in living in the house. What it will do is give me access to the remaining equity to use a heloc on an investment property that I will be buy below market value, fix up, refi and put the money back.

The mortgage broker I spoke to said it could be done by doing a "Gift of Equity" since it's between father and son so I wouldn't need a down payment.  Is this a good solution to do or even make sense to do?

A friend has done life estates with both his and his wife's parents houses.

He bought the houses and takes care of the taxes, ins, maint and repairs. The life estate gives the parents the right to live there as long as they want to or are able.

The difference here is my friend actually has money.  Your whole deal as outlined just sounds like a disaster waiting to happen. A reverse mortgage but maybe worse. I'd suggest they just sell and downsize, keeping their equity.

Originally posted by @Tommy Carey :

Assuming the owner occupied family loan works, should I wait until I have the investment property in my sights before executing the process?   Or should I seek a pre-approval situation?   I don’t want to be on the hook for payments if I don’t have an investment in place to cover some of the payments.   Thanks everyone for your input.    

Refinance it in your name now, cash out refi in six months.

As a real estate agent, you know that in a hot market no seller is going to sit around waiting for you to refinance. Just like when you have a client that says "oh I'll just get preapproved after I finish this refinance, and 5 other things! But will you show me 20 houses this weekend?" your response is probably "um, no, go get your affairs in order and THEN we will talk about spending time showing you houses." :P

Great ideas!   Yes I’m sure it drives residential agents nuts.    I sell commercial and have little to do with the financing as it’s usually cash and corporations with lawyers.