Need advice- dad selling primary to pay off debt
My dad (61 y.o.) currently lives in our childhood home and has been struggling to find a job. He managed afterschool programs for a majority of his career making between 60k-120k/year, but was recently laid off. Over the years, he's accumulated about 500k in debt from cc's and borrowing from family. The mortgage payment, living expenses, debt, and inability to find a job has been weighing on him and he's deciding to sell his home so that he can:
- pay off his debt
- live without worrying about mortgage payments (by buying a cheaper house all cash)
Unfortunately house-hacking is not an option. Before jumping the gun, I want to make sure that selling is the smartest decision especially since his monthly mortgage payment is low and he has ~1.2m in equity in the house. What's the best way to pay off his debt while keeping the house? Current childhood home:
- 485k mortgage left on home in the East Bay of California
- ~3k monthly mortgage payment
- Valued @ ~1.6m-1.7m
His plan is to use his profits after selling, paying off debt and capital gains tax, and buy a 500k house. What is the best move he can make for long-term financial stability, especially considering that he may not be able to find a good job again?
#3 All Forums Contributor
- Investor
- Northern Virginia
@Melody Tay
Why not look into a reverse mortgage if he has that much equity?
That is what I would recommend - that way he doesn’t have to move, pay any taxes on sale….
I agree with @Chris Seveney, tell your dad to look into a HECM reverse mortgage. At least to rule another option out before you pursue the "nuclear option" of selling his long time home.
The downside is I believe you need to be 62 before you can do a reverse mortgage. The fees are higher than a conventional mortgage and he will have to go through some financial counseling most likely. But it gives him an option to either stop with his payments, get a line of credit or a chunk of cash. It may not be enough to pay everything, but it's woth looking at.
#4 Multi-Family and Apartment Investing Contributor
- Investor
- Shelton, WA
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#4 Multi-Family and Apartment Investing Contributor
- Investor
- Shelton, WA
I'm not an accountant and tell your dad to talk to one. I believe if he moves to another state, one that has no state income tax (Wa for example), when he becomes a resident there he can then sell the house and not pay ca state income tax on the capital gain. Well worth checking out.