Selling co-sign home

[Lynn Wong]

Should we sell the house for equity needed.

We are in CA, I am co-signing my nephew's home, currently paying $1500 mortgage monthly with 2.75% interest, it has 342K left on the loan. Equity is around 600K, We need 250K cash to help our sister. However, we can't afford to cash out refinance at this time. Also, if we do HELOC for $250K, monthly interest will be a lot. We want to downside the house to smaller home 3/2 instead of 6/4 right now. Is it better to sell, give my sis 250K and use 300-350K to get smaller home around 575K and restart mortgage 200-275K with current high interest with monthly mortgage probably the same as we are at now? Not sure what to do but we really need to help my sis. TIA!

[Connor Ryan]

Lynn, 

This is a tricky situation but I believe that giving up a 2.75% interest rate is challenging to give up as we may not see rates that low for a long time. It really depends on the purpose of the $250k to help your sister. 

One option is that you could do a HELOC on the home now to get her the immediate $250k. HELOC rate's can hover between 7-10 % pending underwriting so you'd be locked in temporarily with a payment. However, rates could potentially drop in the next 12 months. If rates were to drop, you can now feel confident in selling your home, paying off the HELOC and getting a new downsized home at a lower rate than the current market. Also, this would give more time thus putting you in Long Term Capital Gains Exemption if you've lived in the home 2 of the last 5 years. You might also find that you have the ability to refinance in 6-12 months as that gives you more time to save cash and also watch the market. The only disadvantage is that you would pay the HELOC payment to buy time to see what happens.

I'm happy to discuss all options if you have questions about HELOC's.

-Connor

[Lynn Wong]

@Connor Ryan: thanks Connor! I have HELOC on my own home and thought to use it to pay off my sister's debt, but it is just the trade off debt, instead of her , it's me now. If selling the home, my name will be off the current loan, my nephew can be on by himself when they buy a smaller home. I can continue my own investment and my sister has money to pay off her debt. The deed is under my nephew's name and he lives there for almost 5 years, he can claim that 250k tax exemption if we sell the home.

[Lynn McGeein]

Quote from @Lynn Wong:

@Connor Ryan: thanks Connor! I have HELOC on my own home and thought to use it to pay off my sister's debt, but it is just the trade off debt, instead of her , it's me now. If selling the home, my name will be off the current loan, my nephew can be on by himself when they buy a smaller home. I can continue my own investment and my sister has money to pay off her debt. The deed is under my nephew's name and he lives there for almost 5 years, he can claim that 250k tax exemption if we sell the home.

Does your nephew even want to sell? You're the co-signer, not the owner, so it would be his decision on whether to sell it or not. Even if your sister is his mother, giving up a 2.75% interest rate, giving away 250k of his equity to pay off someone else's debts (even a family member), then having to downsize but have approx the same mortgage payment doesn't sound fair to him at all.  Aren't there other alternatives to solve your sister's 250K debt problem?  Giving your sister 250K of his equity and removing you from co-signing responsibility sounds great for you and your sister, but actually seems harmful financially to your nephew. Would there be gift taxes involved as well?  I, personally, would consider any other option, including bankruptcy for your sister if she really has that much debt that she can't pay, rather than ask my nephew to give that much equity away and start over smaller with a much higher rate.        

[Noah Laker]

Hey Lynn, I think we've connected before. I'm a local broker and investor in Sacramento. We do loans / refi as well. Happy to run scenarios with ya if you need to make a move. :)

[Lynn Wong]

@Noah Bacon my sister was the one put down over 250K down payment for the house, I had been helping paying their mortgage for most of the time because my nephew has no money since he is still in school, just his name is on the loan and title.  It’s totally not affected my nephew at all. I am just trying to help their family financially but at this point I think I should let them taking over their responsibilities. So, I am thinking selling the house will be the better option for my sister, myself and they still have smaller house to live together once they use the proceed to down for a small home and hopefully they can refinance next year or so when the interest is lower. 

[Scott Scoville]

Quote from @Lynn Wong:

Should we sell the house for equity needed.

We are in CA, I am co-signing my nephew's home, currently paying $1500 mortgage monthly with 2.75% interest, it has 342K left on the loan. Equity is around 600K, We need 250K cash to help our sister. However, we can't afford to cash out refinance at this time. Also, if we do HELOC for $250K, monthly interest will be a lot. We want to downside the house to smaller home 3/2 instead of 6/4 right now. Is it better to sell, give my sis 250K and use 300-350K to get smaller home around 575K and restart mortgage 200-275K with current high interest with monthly mortgage probably the same as we are at now? Not sure what to do but we really need to help my sis. TIA!

The goood news Lynn, is that this is a good problem to have. You have a ton of different options. I'm an experienced local investor and investor-friendly-agent in Sacramento. I help manage other investors portfolios and would be happy give out some free advice anytime. Let me know when you have time to jump on a call to discuss.