A smart investment?

**elessar78** · 07-18-2009, 10:46 AM

Need more info.

I assume that your mom doesn't have sufficient retirement savings, hence the need to do a reverse mortgage? And she wants you to assume the payments to free up her income to support herself?

Well 39K, if you can afford it, for a 240K house is a GREAT deal in theory.

-do you want to live with your mom for the next few years? You're 25 don't you want to be out on your own in the near future?

-What about your sister wouldn't it be fair to let her in on the action if she wants? It is family afterall and you may not want to hurt your relationship with her.

-The house was valued at 240K 2 years ago. A lot has happened in the housing market since then you might want to get a more current appraisal.

**timopenmindsent** · 07-18-2009, 11:03 AM

Thanks for the quick response.

Yes you're assumption is correct. My mom is on permanent disability and makes very minimal income, so she doesn't have any retirement savings. If I took over the mortgage it would help her immensely, which will play a huge factor in my decision.

- I don't mind living at home for a few years to pay it off. She has a hard time getting around so I don't mind staying here and helping her out. I could even continue to pay for it if I end up moving in with some close friends.

- As for my sister, yeah we would definitely discuss it as a family prior to taking any action.

- I understand that the house is valued a lot less now. I guess the important thing will be its value years from now when I would either own it or sell it.

This being said, would you pursue something like this or would you invest the money another way? (mutual finds, stocks, etc)

Thanks Again!

**creditcardfree** · 07-18-2009, 11:59 AM

Do you have your own emergency fund? What are you saving for retirement? What debt do you have?

**buildmybudget** · 07-18-2009, 12:09 PM

One thing to consider is your life goals. Do you want to continue to live in that area, or do you plan on moving somewhere else eventually? What about work--could it potentially take you somewhere else? Although it's important to consider the financial implications, I recommend also considering what it will mean to be locked in there for a while. I think it's great you want to take care of your family though!

**Like2Plan** · 07-18-2009, 03:39 PM

timopenmindsent,
You are mixing two things--one is your responsibility to your Mom and the other is investing. I wouldn't mix the two. If you go into this realizing you could have nothing for it at the end, but you want to help your Mom (and you can afford to do it)--it would probably work out okay.
There are several scenarios where this might not work out as you are anticipating. One is you could pay off your Mom's home and she could still get a reverse mortgage on it. Or, later on down the road she may need more care, she could sell it outright to raise funds for an assisted living situation....

**disneysteve** · 07-18-2009, 04:53 PM

I don't know much about inheritance rules, but if you pay off a loan in her name and then she dies and leaves you the house, you'd be considered to be inheriting the portion of the house that you actually paid for. That might cause problems at tax time. Just something else to think about before doing this.

I'd also be concerned about how you intend to keep things even with your sister.

**swanson719** · 07-18-2009, 05:09 PM

Disneysteve has a point as far as inheritance. It might be better for her to transfer the house into your name for the $39K, which would avoid the taxes on whatever the house is valued at at the time. It also protects the house from debt collectors should she end up in a long term care facility like a nursing home. I think this is a good move as far as an investment is concerned, but it's awful touchy with your sister. One way or another you're going to either still be splitting it with your sister, or have to buy her half out. I think the best solution to this would be for the property to be in your name, both of you pay it off, and then when you decide to sell it, she would still get her half. That way both of you help out your mom, and both of you reap the financial reward. It also would make it much easier for you to live elsewhere if you choose and still have your mom in her house, because you and sis would be splitting the payments.

**elessar78** · 07-18-2009, 05:10 PM

Tim,

Like2Plan has a good point. A verbal promise to leave you the home was made, but if something were to happen and she would need to sell the house to pay for care, I don't know how much recourse you'd have.

Essentially, she's selling you the house for 39K. Why not just make the sale official? She sells it to you for 39K and you agree to let her live in the house as long as she pleases. That frees up her income to take care of herself.

**disneysteve** · 07-18-2009, 05:22 PM

Originally posted by timopenmindsent View Post

if I do not help her pay off the house, she will most likely need to take out a reverse mortgage at some point, and it will become government property when she dies, leaving us nothing.

This isn't correct, by the way. The home doesn't become government property. The government has nothing to do with it.

If your mom takes a reverse mortgage, she borrows money against a portion of the home's value. Let's say she borrows 100K. Unlike a home equity loan/line which requires repayment to start right away, with a reverse mortgage there is no payment due until either the borrower dies or sells the house (not sure about if she moves out but doesn't sell). So if she borrows 100K, when she eventually dies, you and your sister would need to repay the 100K. Most likely, you would do that by selling the house. Whatever you get for the house beyond what is owed on the reverse mortgage, you would still keep. It is similar to what would happen if she were to die while still owing that 39K on her mortgage. You'd have to repay that amount from the sale proceeds.

I'm not sure if what I've written is 100% accurate. Hopefully, if I misstated anything, someone else can correct me.

**Like2Plan** · 07-18-2009, 07:55 PM

Originally posted by swanson719 View Post

Disneysteve has a point as far as inheritance. It might be better for her to transfer the house into your name for the $39K, which would avoid the taxes on whatever the house is valued at at the time.

Just a comment on this one point--Actually, the way it works is at the time the person passes on the house is valued. That becomes the new cost basis of the home. If it appreciates considerably it is more beneficial to receive it through an inheritance. In this situation, I doubt there would be enough assets to trigger an inheritance tax.

**timopenmindsent** · 07-19-2009, 11:19 PM

Hey everyone thanks for the responses. This forum is really active, haha.

Originally posted by creditcardfree View Post

Do you have your own emergency fund? What are you saving for retirement? What debt do you have?

Yes I should be able to save about $800 per month in my emergency fund once I begin paying on the house if I choose to do so. I do have some credit card debt and student loans that I am currently paying on.

Originally posted by buildmybudget View Post

One thing to consider is your life goals. Do you want to continue to live in that area, or do you plan on moving somewhere else eventually? What about work--could it potentially take you somewhere else? Although it's important to consider the financial implications, I recommend also considering what it will mean to be locked in there for a while. I think it's great you want to take care of your family though!

As of now, I have no problem with continuing to live in the area, and could easily see myself living here in the distant future. I've got my own online business and work form home so although my work could potentially have me traveling, it will never be absolutely necessary. And yeah it will take a huge stress load off of my mom!

Originally posted by Like2Plan View Post

timopenmindsent,
You are mixing two things--one is your responsibility to your Mom and the other is investing. I wouldn't mix the two. If you go into this realizing you could have nothing for it at the end, but you want to help your Mom (and you can afford to do it)--it would probably work out okay.
There are several scenarios where this might not work out as you are anticipating. One is you could pay off your Mom's home and she could still get a reverse mortgage on it. Or, later on down the road she may need more care, she could sell it outright to raise funds for an assisted living situation....

Thanks for considering these scenarios...I didn't think about that yet. These scenarios are very possible since she doesn't have anything saved for retirement. I will definitely keep these strong in mind before making my decision!

Originally posted by disneysteve View Post

I don't know much about inheritance rules, but if you pay off a loan in her name and then she dies and leaves you the house, you'd be considered to be inheriting the portion of the house that you actually paid for. That might cause problems at tax time. Just something else to think about before doing this.

I'd also be concerned about how you intend to keep things even with your sister.

Thanks for the advice. Wouldn't I have to pay tax anyway since I would be inheriting the house? I was definitely planning on this. Oh yeah and we would need to go over everything with my sister before making any decisions.

Originally posted by swanson719 View Post

Disneysteve has a point as far as inheritance. It might be better for her to transfer the house into your name for the $39K, which would avoid the taxes on whatever the house is valued at at the time. It also protects the house from debt collectors should she end up in a long term care facility like a nursing home. I think this is a good move as far as an investment is concerned, but it's awful touchy with your sister. One way or another you're going to either still be splitting it with your sister, or have to buy her half out. I think the best solution to this would be for the property to be in your name, both of you pay it off, and then when you decide to sell it, she would still get her half. That way both of you help out your mom, and both of you reap the financial reward. It also would make it much easier for you to live elsewhere if you choose and still have your mom in her house, because you and sis would be splitting the payments.

Thanks for the info! I see...so it sounds like putting it my name could definitely be a strong consideration. Great idea with us each paying half now. The only problem is that she is actually in a very bad financial situation herself and would definitely not be able to help me pay it off. I think the only way that I would pay the full 39K off is if I could be assured that I would be given the option to own the house myself, or sell it and get my half plus the 39K that I put into it.

Originally posted by elessar78 View Post

Tim,
Like2Plan has a good point. A verbal promise to leave you the home was made, but if something were to happen and she would need to sell the house to pay for care, I don't know how much recourse you'd have.

Essentially, she's selling you the house for 39K. Why not just make the sale official? She sells it to you for 39K and you agree to let her live in the house as long as she pleases. That frees up her income to take care of herself.

Yeah a lot of people have been mentioning the possibility of her needing to sell the house for future care. Something I hadn't considered, and definitely something that will probably end up making my decision for me. Thanks for the advice!

As for making the sale official and putting the house in my name, I would be all for it! But I could definitely see her being afraid to do this for one reason or another. I guess when you've been paying off a house for 20+ years, it's hard to turn the deed over, even if it's to your own son. I will bring this up though, and possibly I could set up an appointment with someone to explain everything to her so she feels more at ease.

Originally posted by Like2Plan View Post

Just a comment on this one point--Actually, the way it works is at the time the person passes on the house is valued. That becomes the new cost basis of the home. If it appreciates considerably it is more beneficial to receive it through an inheritance. In this situation, I doubt there would be enough assets to trigger an inheritance tax.

I see..thanks for the input!

**swanson719** · 07-20-2009, 10:45 PM

You might consider long term care insurance. This will cover her in the event of a nursing home, etc. while protecting her existing estate.

A smart investment?