Home purchase assistance for a son
Background: My sons (ages 25 and 29) bought a house together in 2019 and after refinancing currently have a less than 3% mortgage. The house is valued at about $325k and the current mortgage value is just under $200k. They are co-owners on the mortgage and all other house docs. My husband and I own our home outright. It is currently valued at $700k. My older son will be getting married in late 2023 and he and his new wife will remain in the house and take over financial payments on the house (but not refinance so they can maintain the great mortgage rate). He is not in a position where he can “buy-out” his brothers equity portion of current house. My younger son will continue to live there until spring/summer 2024 at which time he wants to buy his own home.
My question is – what is the best way to help him accomplish this? As he will still technically have a mortgage on the house they are currently in, he will not qualify for a second mortgage. He has about $75k in investments and his only other debt is a $200/month car payment that he continues with until Dec 2024. His credit score is about 800. I am looking for options that we can take to help him get a new home next year. The options we have come up with are 1.) we would take out a mortgage on our currently paid off house and use it for him to do a cash buy of a new home. 2.) We would buy the home for him (so it would be seen as a second home for us) 3.) We would co-buy the new house with him which would hopefully allow him to qualify on the mortgage. Or are there other options you can think of? In all cases, he will make all payments for the mortgage, taxes, insurance, etc…. He is very responsible and a great saver so I do not have any concerns with assisting him with this financially, but I am looking for advise on the best path to do that. Additionally, are there any tax considerations we should be aware of?
Terry Says
So, the real question is how he can extricate himself from the equity he has locked into (and the debt obligation) of the first home. And that quickly gets complicated. Assuming his half of the equity in the home is 1/2 of the $125,000 you mentioned, or about $75,000 — how about suggesting your older son’s bride chip in to buy him out? That wouldn’t necessarily invalidate the mortgage obligation if a good attorney sets the documents up correctly.
Or you could buy out his share of the equity, reducing his ultimate inheritance by that amount. Then he would have the $75,00 cash equity to buy a new home, or use for whatever purpose. And if you want to co-sign his new mortgage, that might help him buy the new home. You need a good mortgage lender to help you figure this out. Try my pal Leslie Struthers — Leslie@rate.com. I’ll be she can figure out a solution without giving up that great 3% mortgage!!
