OP - are you buying where the real estate market is sound? What’s the likelihood your son and his wife maybe moving due to job change, etc? Whenever you buy/sell real estate there are transaction costs - legal, commission, recording…etc. A lot of people incorrectly think paying rent is “throwing money away.” It is not always the case, especially if real estate is not appreciating or if the rental market is soft. You can easily figure out whether to buy or rent by using a spreadsheet.
Oldfort - We are buying in a very strong real estate market. I would say the odds of them moving out of the area are close to zero. She is very close to her family and they did not even entertain the idea of moving any place other than back home upon graduation (even after my prodding to open their minds about where they would be willing to live when looking for jobs.) I am not worried about being able to sell the property if necessary. I have looked at the numbers and am comfortable that this is the correct decision (rent vs buy). I am an accountant so spreadsheets are always involved in my decision making :-). Even if appreciation only covers the selling costs they will still be ahead (they will have $18k in equity in 5 years if they can break even on the sale.)
Rockvillemom - thank you for the question about transfer tax. We originally were going to make it 2 separate transactions because my son and future DIL wouldn’t be able to make the closing. They are going to be able to make it now so perhaps we can put it directly in their names. The closing is happening at a title company.
You may need to do an addendum to the purchase contract either adding son and future dil as purchasers or swapping purchasers entirely. Have you discussed the whole scenario with title company? Laws vary from state to state, same with transfer taxes and recording fees. The title company attorney can give you the best advice on how to do this to minimize taxes and accomplish your goals. Ask them about preparing and recording mortgage and deed of trust - again - the documents may vary by state.
Thank you Rockvillemom. I have emailed the realtor, but will contact the title company directly tomorrow. I appreciate your guidance.
Good luck!
You need to call your attorney for advice before you do this. As I understand it, you can “loan” money to anyone as long as you do Not charge interest.
A little of both, standard legal language but very simple and straightforward… and short. We had a very good real estate attorney. That’s all he does (real estate closings in Boston) all day long. He is a good friend of a relative, so we trusted him and he gave us a good flat fee price. My wife and I were not even in Boston for the close. My son and the attorney took care of it, and I moved funds to my son’s account the day before (yes, I trusted him with that). The attorney followed my instructions pretty much, but when he wrote up the mortgage he stipulated the first payment in advance. I told my son he could make the first payment after 30 days. Standard late penalties were included in the mortgage document. So far (1 1/2 years) we haven’t had any late payments, but if our son got into trouble we would certainly not charge penalties and would let him skip payments, but as I mentioned earlier, at this point the loan is very well secured by the value of the property.
Rockvillemom’s advice is good. You could assign the purchase contract (may need consent of Seller) to your S and DIL, and have them close on the purchase. This way not only do you avoid paying transfer taxes twice,but the title policy would be in S and DIL’s name. Also, as the contract purchasers, any recourse against sellers under the contract (for breach of warranties, misrepresentations, etc.) would inure to their benefit.
Discuss this with your real estate attorney. He/she should also be able to prepare a relatively simple note and mortgage for you.
" If an accident happened at the home we wouldn’t want to be the ones getting sued (since we have significantly more to lose.) "
I hope your son gets an umbrella policy. They really don’t cost much.
We went ahead and assigned the purchase contract and the attorney is working on the rest of the paperwork. Thank you to everyone for your assistance.
Not married, plus no money saved (no saver habits created) and one is unemployed. Yeah, that’s a good scenario for home ownership and debt management.
Let them get married, rent a dive for a while to save money, and buy their own place. Then you can give them a nice chunk of money in your will so they can buy a nice retirement home or send their kid to college debt-free after they’ve learned to be savers for decades.
ETA: Just made it page five. Oh well.
Maybe she can afford to do both - help them now AND leave money in her will.
My H and I do our financial planning assuming we live to be 100 (we are 51 and 55). When I turn 100 my kids will be 73. I don’t really want to wait to they are 73 to hand them money.
The fact that mom2010grad is able to purchase the townhouse with cash suggests that she has modeled good financial habits for her S. There are plenty of ways to learn to save other than saving for a down payment on a house.
She could’ve just gifted the house to her S. Instead, she structured this as a business transaction. In light of her posts, it sounds like a win-win situation to me. If I had the funds to do so at the moment, I’d do the same for my S.
It also sounds like she’s thoughtful in her planning when it comes to tax consequences, etc. I say good for her.
Thank you Pizzagirl and Overthedge for responding more eloquently than I may have to the prior comment - thus I chose to not comment at all :-). The fact that my 21 year old son and his fiance have not amassed the savings to make a down payment on a house is not a reflection on their understanding of hard work and money management. It is purely a result of them being 21 and finishing their last year of school. He is applying for jobs (she has secured one.) He will not be unemployed as we own a business and will put him to work until he his able to find a job in his field. The mortgage payments will not be a problem. It is not our preference that he work in our business at this point because we want him to develop the confidence that he can go and be successful on his own. We will be blessed if one day he chooses to come into our business permanently.
Us helping our kids out today does not preclude us from helping them again in the future when they want to send their kids to the Catholic school they were both fortunate to attend or if they need help with college tuition. We have worked hard, spent well below our means and saved a lot of what we have earned. We don’t have a problem using what we have to help our kids (just as we use our resources to help others in need.) If we handed them a house mortgage free we would not be doing them a favor, but giving them the ability to start building equity from day one is not spoiling them. We know our kids, just as you all know yours. I am not worried about this decision we have made at all. And fortunately if it does implode it would not be a financial hardship for us.
We are thinking of doing something similar for our kids, though perhaps structuring it a little differently for our particular financial purposes. Right now it would be for our daughter as she is more “settled” in a city versus our son, who could wind up anywhere as his post-school job ends this summer (it was a year long gig). We have frugal kids who are well aware of the value of money. Like you, not worried at all.
^I’m another parent waiting for kids to be settled enough to try and do this. It would benefit parents and kids financially, in our case.
Congrats - mom2010grad!
After you posted this, I’ve been on-line looking at “bottom of the market” properties in my kids’ locales. Thanks for getting me working on this. I just don’t know how long we can count on them staying put, which puts a different spin on the whole project. I already had to sell one house during the housing collapse.