Hello!
In 2021, the wife and I got help with buying our first home. We had been dealing with employment and underemployment issues so our credit was not quite there to get approved for the mortgage, even though our finances were suitable. So we had some incredible help from a parent who volunteered to put their name on the mortgage, and we have an agreement to basically cover all expenses until the point where we can quality for the mortgage ourselves, at which time my parent will gift the house to us. There is enough trust there for everyone involved to be comfortable with the arrangement. On paper, it's my parents house with their name on the mortgage and title, and my wife and I are renting without an agreement (again, the trust is there).
So we are aware of the following facts: when the mortgage term is up next year, the wife and I have the credit score, finances, and employment history to qualify for a mortgage, so we don't anticipate an issue there. If there is such a problem my parent is ok with resigning if necessary. When we resign, we anticipate a good 25% increase in property value by then, and there will be a HEFTY capital gains tax bill, since my mom would either be "selling" a secondary home, or "gifting" the home which is the same as "selling at market rate" as far as capital gains are involved. As far as we know, we don't see a way to avoid the capital gains tax since the home is in my mom's name (if anyone knows a loophole, I'm all ears!).
So my ultimate question is this: when the home is transfered to our name from my parent's name. How should I best handle the transaction and subsequent tax bill? With my limited financial knowledge I can think of the following options:
1) add the tax bill to the mortgage amount. Is this doable?
2) start a HELOC. I see the options are to have a standalone LOC or have it bundled with the mortgage. Am I understanding this option right? Is it a good option?
3) pay the tax bill in cash. I don't anticipate this being very easy to do. I'm ballparking like a $20k+ capital gains tax bill, which we DEFINITELY don't currently have the means to pay. It would be a huge hassle to try and scrounge help from friends and family to scratch that together, but could possibly be a cheaper loan option with a "friend and family rate" for borrowing money.... Obviously risky since $20k is a lot between friends and family.
Is there any options I'm not considering yet that I should.
Ps. I know the home ownership situation is weird and messy, but at the time we were desperate to get into a home, and even then we could see the writing on the wall that it was "now or never" to get a home in our hands. We were willing to enter in the weird situation with my parent, and they were happy to help us get in a home. Obviously if time was availabile, we would have waiting until we could get approved for a mortgage, but in hindsight it was right not to wait for that.... Housing situation got real weird, real quick.
In 2021, the wife and I got help with buying our first home. We had been dealing with employment and underemployment issues so our credit was not quite there to get approved for the mortgage, even though our finances were suitable. So we had some incredible help from a parent who volunteered to put their name on the mortgage, and we have an agreement to basically cover all expenses until the point where we can quality for the mortgage ourselves, at which time my parent will gift the house to us. There is enough trust there for everyone involved to be comfortable with the arrangement. On paper, it's my parents house with their name on the mortgage and title, and my wife and I are renting without an agreement (again, the trust is there).
So we are aware of the following facts: when the mortgage term is up next year, the wife and I have the credit score, finances, and employment history to qualify for a mortgage, so we don't anticipate an issue there. If there is such a problem my parent is ok with resigning if necessary. When we resign, we anticipate a good 25% increase in property value by then, and there will be a HEFTY capital gains tax bill, since my mom would either be "selling" a secondary home, or "gifting" the home which is the same as "selling at market rate" as far as capital gains are involved. As far as we know, we don't see a way to avoid the capital gains tax since the home is in my mom's name (if anyone knows a loophole, I'm all ears!).
So my ultimate question is this: when the home is transfered to our name from my parent's name. How should I best handle the transaction and subsequent tax bill? With my limited financial knowledge I can think of the following options:
1) add the tax bill to the mortgage amount. Is this doable?
2) start a HELOC. I see the options are to have a standalone LOC or have it bundled with the mortgage. Am I understanding this option right? Is it a good option?
3) pay the tax bill in cash. I don't anticipate this being very easy to do. I'm ballparking like a $20k+ capital gains tax bill, which we DEFINITELY don't currently have the means to pay. It would be a huge hassle to try and scrounge help from friends and family to scratch that together, but could possibly be a cheaper loan option with a "friend and family rate" for borrowing money.... Obviously risky since $20k is a lot between friends and family.
Is there any options I'm not considering yet that I should.
Ps. I know the home ownership situation is weird and messy, but at the time we were desperate to get into a home, and even then we could see the writing on the wall that it was "now or never" to get a home in our hands. We were willing to enter in the weird situation with my parent, and they were happy to help us get in a home. Obviously if time was availabile, we would have waiting until we could get approved for a mortgage, but in hindsight it was right not to wait for that.... Housing situation got real weird, real quick.