Taking out a HELOC on a home after QuitClaim Deed?

Question

My mom owns a home free and clear that is worth 169K, she is going to sign a quitclaim deed as me as the grantee, with her name also still on the deed until she passes away. Can I take out a HELOC to help with my real estate investing on a house that we will own together? Will there be some sort of waiting period before I can?

Jon Holdman · Answer

You should seek tax and legal advice before doing anything.  I assume you mean she will do a new deed (do a warranty deed, not quit claim) with "her" as grantor and "her and you" as grantee.  That's a gift and has tax consequences.

Much better, tax wise, to do a "beneficiary deed".  Might be called something else in MS.  This is a deed that leaves ownership with the current owner, but automatically transfers ownership on death.  This avoids probate and also gives you the "stepped up basis" for the property.   That's important because if she gives you ownership now, her basis is your basis and you'll pay taxes on all the gains if you sell.  If it transfers on death, your basis is the value at the time of the death.  So, it you sell quickly you will pay little or no tax.  If she gives it to you now and you sell after she dies, you will pay the same tax she would pay if she sold now.

A beneficiary deed would not give you any current ownership, so no ability to borrow against the property.  IMHO, and I acknowledge I'm in the minority here, is that taking money out of your residence to invest is a bad idea.  If your investments go bad you risk losing the roof over your head.  To do that with mom's house is, again IMHO, a flat out horrible idea.  You are risking the roof over your mom's head to invest.  So, you must be prepared to do whatever it takes to preserve your mom's house even if your investments turn into complete losses.

Tony Brown · Answer

It's my understanding that all parties with financial responsibility to the property will need to consent to the new loan. Mom will be responsible for HELOC in the event you become unavailable. There should not be a waiting period, but you will need to include Mom on the HELOC paperwork. I would consult a good loan officer the deals in investment options.