I have some interesting news. I will likely be acquiring another house. Specifically, it would be the house I currently live in. This acquisition came as somewhat as a surprise – mainly with respect to the timing of it. By way of background, I currently live with my mom. She has decided that she wants to put my name on the title of the house. We’ve had that discussion before, but I wasn’t ready then. But now I am. Of course, the question becomes how! How should my mom give me the house. Should it be by joint title or should I inherit the home? Let’s discuss.
Why Wasn’t I Ready Before?
The answer comes down to my debt-to-income ratio.
My mom still has a mortgage on the property. Also, back then, I had plans to purchase additional real estate. My concern is that if my name was on the title, I would be responsible for the mortgage? Ordinarily, that’s not a problem, but because I wouldn’t be charging my mom any rent, the whole mortgage payment would be held against me when the banks do their debt-to-income ratio calculation.
So, because I didn’t want to harm the prospects of me qualifying for a mortgage, I chose to hold off on putting my name on the title of the house.
Of course, I am aware that sometimes it’s possible to put your name on the title without being responsible for the mortgage. But, at least in my mind, I didn’t want to subject my mom to a due-on-sale clause. Although, in writing this post, I realize that there might be exceptions and that it was possible to add my name to the title without adding my name to the mortgage.
In any case, I just wasn’t ready then. But, now that I’ve purchased purchased my beach condo, I am pretty much done buying real estate. There is a small chance that I will buy one last one about 3 years from now, but we will see.
Bottom line is that I am ready now to acquire my mom’s property.
How To Acquire The Property
So, there are a few options. One option includes putting my name on the title without putting my name on the mortgage. We plan on checking with the bank to ensure that they are good with that option, incase we decide to go with that route.
Another option includes adding me to the mortgage. I don’t mind this option, but the bank would have to qualify me to be added to the mortgage. Of course, I should be able to qualify given the relatively low balance of the mortgage (about $150,000).
I am concerned about the tax consequences of either option above. Essentially, my mom would be gifting me the house, and my initial research suggests there are adverse tax consequences to doing so.
Yet another method is for my mom to put the house in an irrevocable trust. Doing so avoids the negative tax consequences, but once done, the decision can’t be reversed. I’d be lying if I told you that I understand all the ins and outs of any of the above decisions. I did find the following article helpful as it discussed Four Ways to Pass Your Home To Your Children Tax Free. But, at the end of the day, it’s best to speak to a professional.
So, my mom and I will seek the advise of an estate attorney to help us understand which option is best.
Irrevocable Trust
The likely answer for our situation is for my mom to establish an irrevocable trust. Placing the property in a trust makes the trust the owner of the property. Doing so avoids probate and protects against credits. There are also tax benefits as well.
I won’t pretend to know all the ins-and-outs, as we haven’t yet talked to an attorney. The good news is that the appointment with an estate attorney has been made.
After I did my research, my mom and I decided to call the bank and asked them about putting my name on the title. Without prompting, the bank suggested that the better option was for my mom to establish an irrevocable trust. It was good to have my initial research validated by the bank. But still, my mom won’t do anything until she talks to an attorney. I suspect the answer will be the same, but we will see.
Final Thoughts
Regardless of how I acquire the property, I plan on continuing to help my mom with her expenses. She only receives social security which does cover the mortgage! Back in 2021, I wrote about the fact that I Just Paid Off My Mom’s Debt. That allowed her to get her debt-to-income ratio low enough so she could re-finance the mortgage to be under the social security amount.
I spoke to my mom recently and she explained how she worked very hard all her life and never made more than $20 per hour. Yet, she was able to buy the house and it’s really the main asset she has. I love my mom and can’t wait to help her even more. My goal at some point (after I payoff my credit card debt), is to take over the mortgage payments – even if it is for a year. If I decide to get another professional job (I’ve applied for 2 already), then this would be very easy to do. If I don’t get a job, then it will be a stretch. But, I’ll do almost anything (legal of course) to help my mom.
My estate is taken care of. Should I die before my mom, she will be very well taken care of!!! She is the sole beneficiary of my life insurance policy and will remain so even if I get married in the future. Her estate plan, however, is not yet fully intact. She hates the subject, but thankfully she was the one who recently suggested (again) that I put my name on the house.
So, I anticipate that within the next 3 months or so, I will be on the deed of the house, or be the beneficiary of an irrevocable trust. Once I acquire the house (however way that happens), it should increase my net-worth by about $250,000.
What did you think of this post?
Let me know your thoughts by commenting below.