Help! Easiest way to transfer ownership of my Mom's Home

24 Replies

Hello all,

I wanted to refinance my mothers home in my name however, apparently according to my conventional lender, she would have to sell the property to me and I would have to complete the transaction as a purchase. That won't work because I would have to have 15% in reserves. My plan is to use the equity and purchase investment properties. The balance on the home is 72K however the home is now worth 425K. The property is located in California. Any advise needed I am just trying to figure out the easiest way.

Thanks.

Why not just buy the home from her for $72k with 5% down. Then build your reserves up and do a cash out refinance. Or you could use private money loans and buy the house. Also you could get unsecured loan and buy house or use 0% credit cards. I don't know your financial situation but there's always a way to make it work. But real estate is not a no money investment game no matter what the guru's preach.

The easiest way is to have her quitclaim the house to you.  That's also the easiest way to give your mom a gift tax bill of 55% of any amount  above $15k.  Not done properly , this could end up costing your mom a tax bill of $150k+.  

Get professional tax help. It's not hard for her to reduce this gift amount from her lifetime estate exemption, but consequences are dire if you don't.  

Gifting it to you now will also give you her cost basis.  Maybe $300k in capital gains? Inherit it if you can.

The proper way is to inherit this property at it's stepped-up basis, or for her to gift the equity to you after involving an estate planning tax attorney/CPA.

She could also get a Heloc and lend you the money.  My Heloc was simple and only costed $300.  Nice gift!

@Sophia Berry Does your Mom plan to stay on title and on the loan with you? That would make the process easier and faster.

If she stays on and applies with you on the new loan, there is no waiting period.

If it's her primary residence, there usually is no reserve requirement but it would be based on automated underwriting.

As an alternative, she could simply add you to title now, and then when you've been on title for 6 months you can do a cash out refinance and remove her name from title at closing.

If you refinance it as an investment, reserves are usually measured in months, or if you have several other properties, you will need a percentage of the unpaid balances as reserves, but it's not going to be as high as 15%.

Transferring between family should be fairly simple, and you should not have to "purchase" the home from her to make this work.

*You may want to consult a tax advisor to learn about any tax consequences for gifting property.  Then you can weigh the benefits of using the equity now vs. any potential taxes owed.

Originally posted by @Sophia Berry :

Hello all,

I wanted to refinance my mothers home in my name however, apparently according to my conventional lender, she would have to sell the property to me and I would have to complete the transaction as a purchase. That won't work because I would have to have 15% in reserves. My plan is to use the equity and purchase investment properties. The balance on the home is 72K however the home is now worth 425K. The property is located in California. Any advise needed I am just trying to figure out the easiest way.

Thanks.

Looks like the house has a huge equity built into it. I would suggest not doing anything with the house right now. I would wait to inherit in it so that you could step up basis in the property and you can avoid on the taxes if you ever sell it or get higher basis for depreciation when you rent it out.

@Stephanie Irto Thank you so much for your help. The home is not her primary residence it was our family home but now an investment property. I already have a home so this would be an investment property for me. How hard is it to add me on the title? My plan was to do a HELOC on the property after the home was in my name. In order to do a HELOC I would have to refinance my name to the house correct? Another possible option is to doing an HELOC on my primary residence and just paying off her mortgage. The problem with that is I can't do a cash out on my home until 2021 otherwise I will have to pay off a lien of 25K. Went through a program where they paid my mortgage when I was laid off which states I can't sale or do a cash out until five years. Maybe a dumb question but an HELOC is basically the same a cash out, correct?

@Clifford Paul Thanks for the advice.  I have the 5% the down but not the 20% down for investment properties. I can also get the 20% down however, on a purchase you are not allowed to borrower funds for an investment property. I am in a tricky position. :(

I just had a thought, what if she does a refinance on the home but we both do it together? What are the rules on doing that? Can we both do a HELOC together after? That way I can do all of the paperwork for her.

@Sophia Berry A HELOC is a line of credit (like a big credit card) where you only pay interest on the money you're borrowing. You can pay it back and borrow it again.

A cash out refinance would pay off the 1st mortgage and give you any additional proceeds in one lump sum. So if you're refinancing 75% of the value ($425k), your new loan would be $318,000. After paying off the $72,000, you'd be left with about $246,000 in cash. Your payment would be amortized and based on the new loan amount of $318,000. The benefit of a cash out refinance is that you can lock in a low fixed rate, whereas the HELOC will be variable.

Yes, if you want to be the one to take out the loan, you would need to be on title. I'm not sure if the HELOC lender will let you pay off that $72,000 with the HELOC or not, or whether the $72,000 would have to remain as a first mortgage. In that case, your Mom probably needs to remain on title since she's the one who is obligated on that loan.

You probably don't want to jeopardize the great deal you got on your home, so that's probably not the best route.

It's really not hard to be added to title. If she doesn't want to come off title yet, she can deed the house from herself to you and her jointly.

You can see sample blank grant deeds here, along with the preliminary change of ownership form.  https://faoclinks.com/blankdocs

(You would also need to fill out a preliminary change of ownership report with the county where you record the deed.)

You can ask a title company to help you file the paperwork if you don't feel comfortable doing it yourself.  

Depending on where the property is located, the county website should also have some good information on transferring ownership.  Here is a link on the LA county site regarding Prop 58, which would be applicable throughout the state: http://lacountypropertytax.com/portal/list/faq.aspx?faqID=52

Originally posted by @Sophia Berry :

@Clifford PaulThanks for the advice.  I have the 5% the down but not the 20% down for investment properties. I can also get the 20% down however, on a purchase you are not allowed to borrower funds for an investment property. I am in a tricky position. :(

I probably wasn't to clear. I was referring to borrowing the money to pay the house off not for a down payment. I've been investing for 35 years so I obviously know you can't borrow money for down payments. 

But you can if you pay cash for a home. Those were just some ideas for you to think about. Like I said I don't know your financial situation was just trying to offer some options. Good luck you have a great opportunity and I'm sure you will figure it out.

Originally posted by @Sophia Berry :

I just had a thought, what if she does a refinance on the home but we both do it together? What are the rules on doing that? Can we both do a HELOC together after? That way I can do all of the paperwork for her.

 Yes, you can absolutely do this.  If she will be adding you as a co-borrower and staying on title, you should be able to do this through the loan process and the title company will just add your name on the title at closing.

Since she is staying on title and on the new loan, there is no waiting period for a cash out refinance.

These are the requirements for a conventional cash out refinance, not a HELOC. HELOC guidelines are going to be specific to each lender.

One other way to do this is for you to take over the property via a long term triple net lease, commonly referred to as NNN. This is more common in commercial transactions but could be used for residential although most people never heard of it. Compared to a normal master lease, a long term NNN lease has to be 30 years and over.

In essence she has fee simple ownership (name on the deed) but you have equitable ownership. In other words, while her name is still on the deed, but you are in charge of everything else. Its called triple net because you pay the taxes, insurance, and all repairs, in essence, everything that a owner is responsible for. You have the right to lease to tenants as the master lease holder, so in essence, you're the landlord.

Just to add, for estate planning reason, she might want to transfer title to a trust. You then do the NNN with the trust.

An investor I know who does NNN investing, his clientele are older people, no longer able and willing to handle the property, yet for estate reasons, want to hold on and pass it to heirs on a tax free stepped up bases. What this investor does for clients is exactly where you and your mom s at right now. If there's a remaining mortgage, you can as the master tenant of the NNN lease, collect the rents, and pay the mortgage.

There are other things that go with a NNN lease, like an option to buy, This the investor tells me is so that he can make a tax free option payment to the owner, who sometimes are in need of cash. This option gives the lessee the right to buy it outright in the future if you want to, though for estate reasons, you may not want to exercise it. But to do this, in your case, you don't need a down payment or get a mortgage, you just get an attorney to write the lease. In fact, you can even get a loan on a NNN lease.

@Sophia Berry I am in a very similar situation as you. I inherited my Dads house (MV $350k and has $35k Heloc) and just this week finally have the estate settled (Just taxes need to be paid). We were initially going to sell the house (in Pennsylvania) because I moved to NY, however we ended up renting it out for the next two years. 

Yesterday I asked Bank of America about their Heloc rates (current Heloc is with Chase) and the Relationship Banker told me BOA can refinance the Heloc and will write a check out to Chase for the open balance of $35k. 

Current plan is to invest with money saved up and once I get more familiar with RI to tap into the HELOC for bigger purchases down the road.

@Sophia Berry . This could be risky unless you are her only heir. If she was to die and only her name is on the title, her other heirs would be entitled to a share of the house and if only your name was on the mortgage, you would still be responsible for the payments solely but not have complete control over what to do with the house.

If you were to do a quitclaim deed now, other heirs may have bad feelings about it because they may feel that you took more than your share of the inheritance when she does die in the future. Of course if you do not have any siblings and you are her only heir, then these issues would not come into play.

Also to add I would be sure you have significant reserves so that you do not face foreclosure on her house due to a lay-off or another significant stressor which could prevent you from making the payments.

@Amy Beth Thanks for the advice. Yes, I do have two other siblings so the house proceeds is supposed to be split between the three of us however, my plan is to do a HELOC on the property I purchase and pay the money back immediately!!! I don't want that over my head if something goes wrong. Yes, my exit strategy is also that there is a tenant in the home that does not plan to go anywhere just in case of a layoff for me as well as just selling the property if something goes wrong.

@Sophia Berry since the home is located in CA and you are her daughter. When you transfer the property contact the assessor office in the county the property is located and apply for a parent to child exclusion. This will keep the property tax bill the same as it is now. If not the property will be reassessed and the assessed value will be the fair market value of the property. If your mom has owned it for a long time this will save you thousands of dollars annually. Outside of her primary residence she can only transfer up to 1,000,000 in assed value (not fair market value).

Also you can have a legal document preparation company draw up a grant deed, gift deed, ..... and have it recorded in that counties recorders office. But please be aware of tax consequences of such transfers. Discussing this with a CPA who is familiar with Doing business in CA will easily pay for themselves.

Also the lender could call the note due because she transferred title. This is rare but it could happen.

It’s a very generous gift from your mom. Good luck

Why not just quitclaim deed the property and pay your mother's mortgage every month? You do have to be mindful of the due on sale clause, but on a mortgage balance of that small amount, my guess is that the ship can continue sailing without incident if the change is subtly made and the mortgage is paid without incident.