What is the best strategy?

[Nathan Owens]

I am hoping to find the best solution to this situation described below. Ultimately, I am looking to purchase/refinance with or without my siblin co-borrowing, then put an ADU on the home to rent out.

My siblin is on the title to my late grandmothers home. The current mortgage is still in my Grandmothers name and payments are up to date. The note on the house is $160K. Zillow "estimates" the home value @ $443. My siblin has a credit score in the low 600s and Annual income of $40k and my credit score is in the 785 range with annual income of $170K. I will not be living in this home.

My thoughts;

Put myself on the title now, then wait the seasoning period. Cash out Refi w/wo co-borrowing with my sister for 75-80% LTV and use remainder after note is paid off for ADU. (I'm worried that my sisters lower credit score will negatively impact interest rates)

Purchase the house outright for $160K , pay off the note, wait 6 months seasoning period and take a HELOC out for AUD. (I'm not sure how this will play out regarding the value of the home and only paying $160k. How will this affect myself and my siblin regarding the IRS in terms of gift of equity, etc.

I have spoke with a couple lenders that really can't think outside the box, and don't know how to answer these questions. Can you help?