I’m totally new to this whole home buying thing, and I’m hoping someone can break it down for me clearly. I’d like to buy my mom’s house, which is worth around $400k. There’s no mortgage on it, but it does need some repairs, though they’re fairly minimal. This seems like the best option for me to become a homeowner, and I really like the house and the area. My question isn’t if I should buy it, but how to go about it. I initially thought I’d just buy her house like any other house, putting a percentage down and taking out a mortgage. But I’ve heard there are ways around this, like putting her house in a trust instead? I’ve searched in this forum but I still don’t fully understand the answers, and the cases are specific enough that I’m not sure they apply to me. I’d really love to know what a smart way to handle this might be. I prefer not to make monthly payments to my mom since I’d like for her to take the full amount and invest it wisely. My goal is to build a small addition for her to move into in a few years, which has already been estimated at about $150k. That price may change in about two years, but before she moves into the addition, she’ll be renting nearby while she pursues a degree, so she won’t be homeless. Any advice would be super appreciated.
Okay, so the best way to do this is with a conventional loan using a gift of equity. First, decide how much you want your mom to net after the sale. Let’s say $300k. She would sell the house to you for $410k and give you a $100k gift of equity, plus she would cover closing costs of $10k.
@Axelle
Thanks for breaking that down. So I wouldn’t need any money upfront?
Ben said:
@Axelle
Thanks for breaking that down. So I wouldn’t need any money upfront?
Exactly! The gift of equity would cover your down payment, and you’d get a loan for $300k, which would all go to your mom.
What state are you in? If you’re in California, it might be better for your mom to put the property in a trust and have you rent from her until she passes. That way, you avoid a big tax hit.
Hollis said:
What state are you in? If you’re in California, it might be better for your mom to put the property in a trust and have you rent from her until she passes. That way, you avoid a big tax hit.
I’m in Massachusetts. If I rent from her, she’d get monthly payments, which I’d prefer to avoid since I want her to have the full amount upfront.
Also, think about MassHealth benefits if your mom is elderly. Both options have implications for her benefits.
Definitely get a real estate lawyer to help. You do not need to pay a realtor in your case.
Shay said:
Definitely get a real estate lawyer to help. You do not need to pay a realtor in your case.
That’s super helpful! I wouldn’t have thought about that.
If she puts the house in a trust, it can help with inheritance issues and taxes. Why do you need to give her a lump sum?
StarlitMyst said:
If she puts the house in a trust, it can help with inheritance issues and taxes. Why do you need to give her a lump sum?
I just want her to have the cash upfront, but I don’t fully understand the tax implications of that.
@Ben
If she puts it in a living trust, you can inherit it without a huge tax hit, and you’ll be paying property taxes based on her original purchase price instead of the new value.