If I Buy House and Something Happens To Me Right Away .... Question

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If I Buy House and Something Happens To Me Right Away .... Question

Edwin De leon
Investor · bronx, NY · Member since 2008 · 265 posts · 42 votes

What would happen if I buy a house, and will it to my 4 kids, and I were to pass away suddenly within a year or so, which means if I buy a house through VA LOAN with no money down, there will be very little equity on property, and the house now is willed to my 4 kids.

Lets assume, I experienced sudden death within 1 year of the purchase...

1) when the house gets passed to my children on my will, and there is no equity in property or very little since it was a recent purchase with no money down to buy it through VA LOAN, there are 4 kids would i have to assign one name on the title of the property or place all their names on title of property in case of sudden death to me.

2) what legal problems may they experience if the house is willed to them and there are problems keeping up the mortgage for whatever reason, can the bank come after my kids personally and hold them responsible and report them to credit bureaus and ruin their credit

3) what other problems may occur that I am not thinking about that can happen to my kids if I all I leave them is  a BIG DEBT with a BIG HEADACHE 

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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
3y

My first question is do you have life insurance? You might consider increasing your life insurance coverage to account for the mortgage, so your estate is net positive, and so your executor can make the mortgage payments while your estate is settled. 

Your heirs would inherit the asset at it's value at the time of your death, called a stepped up basis (which is one reason you might not want to put them on the title beforehand, otherwise they would get hit with a larger capital gain if/when they sell it). 

So if it's worth $500k, and $500k is owed on the mortgage, their best option might be to sell it and just dispose of the asset and break even. But of course that depends on a lot of factors, such as how much it would rent for, and whether they might need to live in it. 

I do not believe the mortgage would affect their credit if it were to go into default before your heirs take possession of it or assume the mortgage. It could become a foreclosure wrapped up inside a probate case. 

This highlights one of the risks of VA loans. Veterans often finance 100% of the purchase price, and many even roll the VA funding fee into the loan, which leaves them upside down on day one. This is not too bad in an appreciating market. But if the market takes a dive it can leave them in a pickle if they need to sell, or in a case like you described.

I'd suggest doing some estate planning with an attorney and mapping out a comprehensive strategy that takes into account your assets, liabilities, and insurance. 

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  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    3y

    My first question is do you have life insurance? You might consider increasing your life insurance coverage to account for the mortgage, so your estate is net positive, and so your executor can make the mortgage payments while your estate is settled. 

    Your heirs would inherit the asset at it's value at the time of your death, called a stepped up basis (which is one reason you might not want to put them on the title beforehand, otherwise they would get hit with a larger capital gain if/when they sell it). 

    So if it's worth $500k, and $500k is owed on the mortgage, their best option might be to sell it and just dispose of the asset and break even. But of course that depends on a lot of factors, such as how much it would rent for, and whether they might need to live in it. 

    I do not believe the mortgage would affect their credit if it were to go into default before your heirs take possession of it or assume the mortgage. It could become a foreclosure wrapped up inside a probate case. 

    This highlights one of the risks of VA loans. Veterans often finance 100% of the purchase price, and many even roll the VA funding fee into the loan, which leaves them upside down on day one. This is not too bad in an appreciating market. But if the market takes a dive it can leave them in a pickle if they need to sell, or in a case like you described.

    I'd suggest doing some estate planning with an attorney and mapping out a comprehensive strategy that takes into account your assets, liabilities, and insurance. 

    Copeland Morgan LLC4.867 Reviews
    WebsiteView Page
    1Reply
  • Carini Rochester
    Investor · Rochester, NY · Member since 2016 · 576 posts · 358 votes
    3y

    If you will your property to your 4 kids they should not be on the title. Before you die the property is yours (in your name) after you die the 4 kids each get 25%, or as per what's in your will.

    Increase (or get) your life insurance to cover the payoff amount of the mortgage so the family will have the funds to payoff the mortgage.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    That is what life insurance is for.  They can sell the house if they can't afford to keep it.

    1Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    3y

    Not to beat a dead horse here, but you need life insurance. It's a simple, inexpensive way to shut down that doubt and worry so you can focus on actually building a legacy for your family.

    1Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    3y

    Also please don't use a will for your estate. Probate is slow and expensive. It can take a year before the title is transferred to your heirs through probate, and during that time they can't sell it nor lease it.

    Everyone should have a living trust and the property should be titled to it, or if you live in one of the states that offers it, you can use an enhanced life estate deed (Lady Bird deed) either with benefit to your heir directly or to your living trust.

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  • Mohammed Rahman
    Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
    3y

    Hey @Edwin De leon - although there has been some great advice in the previous comments, you definitely need to start talking to your attorney and/or CPA about this. 

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