All Forum Posts by: Jerry Baldwin

 Thank you. How about the part about lowering the price up to 25% below market value? Does anyone know anything about that?

Here's the situation. My grandmother is 93 years old and is in assisted living. She has been renting out her house for the last ten years or so with help from my parents. After finally evicting a tenant they've been trying to get rid of for the last two years, they want to unload the house and we're talking about selling it to me.

The house is valued currently i think around $460k. They're still crunching numbers, but I'm hoping to pay around $315k or less for it. There's a lot of different variables. One of the options I have is to do cash out refinance on my current duplex where we live (owe $100k at 4.25% on 200k house which will then go from owner occupied to full rental when moving into the new house). Obviously there are closing costs involved in that and switching it to an investment property means not necessarily any savings on interest. That way, I could do 20% down and borrow the rest for my grandmother's house. Without the refinance, I have maybe 20k to use for a down payment.

Another option would be to have my grandmother gift some of the equity to my wife and I, which can be $30k total without worrying about taxes. Maybe more than that if you dip into the lifetime gift tax exemption, but I don't know where she stands on that and the total value of her estate. My parents have been handling the house and will be using the proceeds from the house to pay for her assisted living care. I don't know the exact details, but I think maybe my parents could also gift us some cash towards the down payment that would go right back to them/my grandmother, so that would be up to $60k total from the two of them to the two of us in addition to the equity gift from my grandmother. 

What would be the best way to make this whole deal work? $315k would be more than 30% under the fair market value. I've read that you can "usually" get away with pricing the property up to 25% under FMV without IRS coming in for gift taxes. This part I'm unclear about and haven't been able to find enough information on. Is there somewhere that explains that better and what the rules are? Is that the same for all types of mortgages and for non-arms length deals? Let's say that they can price at 25% off safely so that would be $345k. If my grandmother then gifts me $30k in equity (8.7% of the house price), i would then need only another $69k to reach the 20% downpayment mark. Maybe with a combination of that, plus some cash gifts from my parents plus my current savings, i could get away with not needing to refinance my house? Would that be the best way to go? Is the information i read wrong about 25%? Some things i read say gift tax rules will need to be used for anything under FMV.

Also, something else i don't really know anything about is seller financing. Would it be possible to do a mix of a conventional mortgage and then some seller financing? Maybe $150k conventional and $125k seller financing with my parents to get a better interest rate? Would that be possible with my parents if it's my grandmother that is the owner of the house? Would it need to be with my grandmother instead and then if so, what happens when she passes away? Is this a good idea at all or would it just be better to go the conventional route? I know my parents want at least a good lump sum fairly soon, so I'm guessing a big seller financing loan would not get them that.

Thank you everyone! So very helpful and thank you for the encouragement.

 Yes, possibly a child in the next year or two. That 40k includes our emergency savings, so there's still a ways to go to have enough for the down payment plus emergency savings.

Expanding on that, wouldn't it be better to get a HELOC I could pay off in 10 years or less at say 4-5% and let the money stay in the Roth for another 25 years growing at 6-7%? Probably depends a lot on the exact rates and fees. Am I looking at it the wrong way?

Very interesting. I did not consider withdrawing Roth IRA contributions. Why do you recommend this over a HELOC? I would still be about 25 years away from retirement at that point. It doesn't sound ideal to me as I would think it's best not to touch retirement funds, but maybe I'm wrong. I wouldn't be able to put that money back into the Roth eventually in addition to the the max I would be putting in every year, so my total at retirement would be down. Is that still worth it compared to paying interest on a loan (HELOC)? I guess maxing the Roth and taking the contributions out in 5 years would definitely be better than just saving that money now. That part definitely makes sense to me, but I need to look into that more vs a HELOC.

 Thank you very much. I kind of expected to be asked for more info. I know there is a lot going on and there are a lot of considerations. One clarification for something I didn't explain very well is that the house we plan to purchase in a few years will most likely be a single family home for my family, unless we get very lucky and find a two family home that has a small apartment we can rent out. So then our current two family house will turn into a full rental property (currently renting out one unit and living in the other). 

I have been thinking about refinancing in order to lower our interest from 4.25%. I assume rates might still be going down a tiny bit for another year or so, but who knows where it'll be in 4-5 years. We don't have PMI on our mortgage. So you're saying probably not worth it for a 1% decrease. That's helpful thank you. I have been learning a little bit about HELOC recently. One more thing that would be a reason for me not to refinance too soon is that the value of our house has increased possibly significantly since we bought it. After reassessment, our taxes might go up. Did a major gut renovation of the entire house when we bought it. We purchased it at $150k and it might be now $200-225k (probably higher if it was in a nicer area). Is an assessment involved with getting a HELOC? It would be nice to avoid the major jump in property taxes.

Going back to my original question. Would it be more worth it to get a HELOC in a few years to help with the down payment (maybe 20-40k) and put more money into our Roth IRA's now for retirement or save up more now to not borrow any money for the down payment?

I have a two family house and the plan is to buy another one in 4-5 years. Keeping the current one, rent out both units, and move into the new one. We've been saving up for a down payment to do 20% down. Currently have about 40k in the bank and aiming to have 60k for a down payment with more left over. 

My wife and I are currently not maximizing our Roth IRAs in order to save up. We're in our early 30s and putting in about 3k per year for each of us. If we double that to maximize contributions, we'd have that much less for the down payment in 5 years. We're currently saving maybe around 1k per month, but that may change. Current plans to buy a new (used) car later this year and also have another child, so she'll be out of work for a little while.  

I could possibly borrow up to 30-50k or so against our home equity, most likely through refinancing our mortgage, which originated a few years ago at 4.25%. Would it be better to put more into our Roth's for retirement and borrow more for the down payment (either soon to take advantage of low rates or in a few years, closer to the next purchase) or continue saving and putting that into a HYSA, CD's, maybe a little investing?