Need!! help making a decision

[Romane Daley]

My sister is selling her house to me; however, we want to do a mortgage transfer since she currently has a 2.5% interest rate, but the bank will only pay what is owed on the current mortgage. The equity she wants is $55,000, which I don't have in cash fully, but I own a home now with that in equity, and I have money in an IRA.

My challenge is that I don't want to sell my current home; I want to rent it.

I can't decide if I should borrow from an IRA, Heloc, or refinance my current house, which is also 2.5%. I also have credit cards that I can turn into cash, but the interest rate is an issue.

I just don't know what the right move is to get that cash and keep that rate.

Am I missing any other strategies or ways I can gain that capital at a cheaper rate? 

[Nathan Gesner]

Quote from @Romane Daley:

First, I'm not a fan of borrowing money to borrow money. Using a HELOC, refinance, or credit card would be unwise. For example, if you refinanced your home at 7% interest and took 30 years to pay it off, it would cost you a total of $121,000 to pay it off, and you would be paying a much higher interest on your entire home loan.

You could ask your sister to finance it (her price, your terms). Pay a chunk down, make monthly payments at an interest rate that works for both of you, and pay it off as quickly as possible. I'm not a big fan of mixing family and business because it can destroy relationships.

My favorite recommendation is the one nobody wants to hear: work like a dog, save up, and buy things you can afford to pay for. If you can't afford to buy her house right now, take that as a sign that you aren't ready to purchase your next investment. Save up and wait for the next opportunity.

[Romane Daley]

Thank you for the advice, but I have to move there because that's my following duty location. But I guess my best option is to just purchase it at the current interest rate since I still need somewhere to live. I was just looking for best advice to keep the rate.

But that's excellent advice if I didn't have to move there.

Thanks

[Dmitriy Fomichenko]

@Romane Daley

You can't borrow from an IRA; the only way to access IRA funds for personal needs is to take a distribution, which would be taxable, and penalties on top for premature distributions.

If you have enough funds in an IRA the alternative would be to establish a self-directed IRA, and have the IRA buy the property subject to existing financing (if your sister is willing to do that), you personally can't assume the mortgage b/c you are not allowed to provide a personal guarantee for IRA-owned property and have the IRA pay your sister for the equity. You can't use the property personally either; this would be the investment of an IRA, and you are not allowed to receive personal benefits from an IRA. 

[Romane Daley]

@Dmitriy Fomichenko

Thanks for that advice, and self-directed IRA is new to me. Do I need to have the total amount in IRA to cover the house plus her asking equity to do the self-directed or is there a loan option offered by IRA that I can tap into?

Hopefully, my question made sense.

[Dmitriy Fomichenko]

@Romane Daley,

Yes, you can use leverage with an IRA; however, the loan must be non-recourse. Here is a list of lenders specializing in this:

https://www.biggerpockets.com/member-blogs/2810/50272-list-o...

[Jaime Duron]

Hi Romane Daley! Not sure what your sister's situation is and if she needs the money now, but have you looked into Subject to? Basically, you come to terms with your sister on purhcase price, DP, loan terms, etc. The loan will be kept in her name while the deed is transferred to you. There are so many variables to putting this deal together as it could be a win, win situation. There are title companys in your area that handle situations like this. Just thought I would bring another option to the table.