Updated almost 6 years ago on . Most recent reply
Build home for Parent?
Hi there. I have a scenario I'd like to run by you all. I'm worried that I might be making a mistake on several fronts, but I don't know who to ask. My realtor didn't fill me with confidence.
My mom and my grandmother live in 3 story condo on the Oregon coast, owned free and clear by my mom. I'm her only child. My grandmother (86) is getting too frail to go up and down the stairs on a daily basis, so she just stays on the top floor and makes my mom weight on her up and down the stairs. My mom doesn't want to sell her condo as it's her dream location, but she can't keep care taking for her mom there. My mothers credit is still in the tank at around 580 and her only income is 900/month in social security. She would not qualify for a loan. She would like to come up with a solution before the end of summer.
This is what we are looking at:
Her house has 265k in equity. We were thinking of adding me to the title of the house and doing a HELOC on it for 180k (< 70%). I would then use that 180K as a down payment on a conventional loan for new construction on a single story house that is being built in a new development near my wife and I (Est completion date is July with a price of about 280K). We would rent her condo out (1900/month for rent) and use that money to pay down the Heloc and the new home loan. The amount of rent would cover the Heloc payments and the new loan for the single story house (plus taxes/ins). When my grandmother is no longer with us, mom would move back into her dream condo, and we'd put a renter in the single story house we had bought. Rents will be about the same and still able to cover both loans and T+I.
When my mom passes, as the sole child, I'd be left her condo.
Here are my questions:
1) Adding myself to her condo now, in order to use my income (she has none, but social security) and my 800 credit score, does that prove to be an issue. Is there any seasoning that needs to happen for banks..or do they just pull the title and see I'm on it for the Heloc?
2) The other reason for doing it this way, is using the 180K Heloc funds for a down payment on a loan that would be solely in my name, I'd need to show those funds are 'mine.' If the Heloc off the condo is in my name, there is no question there. Do you think I'm missing something here?
3) The new house and loan that secured it would be 100% in my name. Even though it's family, we'd have an agreement written up showing that all rental income from there goes to pay the mortgage first, then the line of credit with what remains.
4) Since it's a Heloc, if we have vacancy or maintenance issues, we could also pull additional funds from it, as we plan on getting a 200K line but only accessing 180k of it for this plan. A built in buffer just in case. Plus since it's a LOC on the condo, the 'minimum' required to pay goes down over time, so if rents decrease over time for a recession, we should be ok.
They way our family sees it, is that it solve the immediate need of Mom and Grandma to get into a single story home, closer to us. She is adamant about not wanting to sell. If she took the max of 200K out and tried to buy used, the quality of the home would be sub par. (We've looked!) She doesn't want a new mortgage payment at all, as she's budgeted with her social security now.
On my side, I get to have my mother and grandmother closer. I would use my excellent credit and income to allow a purchase of a new home build in a sub division. Down the road, I will have have both the condo and the new build as rentals to help start my real estate goals.
Ok, where are the holes and problems? This seems pretty straight forward to me, but outside of having my wife's fathers house as a rental in California, I've only bought and sold primary residences.
I really appreciate the insight. My RE agent didn't seem to have an issue with that plan as long as everything was documented and agreed upon by all parties. BUT, he also said he had never heard of this scenario before. So, I'd like to turn to the experts here!.
Thanks,
Joe