What is the best option in this scenario?

[studentmom]

What is the name of your state (only U.S. law)?
California

I am single working mother from Orange County, CA. My child and I currently reside alone in my parent's single family home, which I pay the mortgage on. I am technically a renter, but I do not have any type of formal contract or agreement worked out with my parents. The monthly mortgage payment is $1780 which I pay in full, and there is about 220k and 20 years remaining on their current 30 year fixed mortgage. I also pay all utilities and pay for repairs/maintenance as needed on the home.

My parents lost their business a few years ago and currently have no source of income and little retirement savings. They currently reside with my grandmother in her retirement community and provide full-time live-in care for her so she does not have to go to a nursing home. So far it is a win-win situation for my parents, my grandmother, and myself (as I would never be able to afford to live in this neighborhood if they did not own the home I am living in).

Thinking ahead, my parents, grandmother, and myself know that we must work out some sort of a financial arrangement that will allow us all to continue to live comfortably if/when my grandmother dies. My parents and uncle will be inheriting my grandmother's home in the retirement community (which is paid off) and worth approximately 250k; my parents will just need to pay off my uncle for his half of the home in order to assume full ownership.

The obvious and most advantageous solution for my parents is to boot me out of the house I am living in and sell it for it's full market value (approximately 500k). Being the loving and generous parents they are, however, they would like to see me and my child stay in the house if it all possible and are willing to gift me a large amount of equity in the home by selling it to me for less than its market value. They only want enough money to pay off my uncle for his half of my grandmother's home if/when she dies plus a little extra (about 150k).

Legally and financially, what is my best course of action in this scenario? Should my parents add my name to the property and have me try to refinance it (if this is even possible) so I can give them 150k in cash? Their credit is probably poor because they used to have a second home and it foreclosed when they lost their business. Should they sell the house to me for less than it's market value, in which case the equity would be my 20% down payment to avoid PMI? Or is there any other route that might work better than these ideas?

I am employed full-time, done with college for now (but might go back for higher degree in a few years), gross income about 80k per year, credit score about 700. I have about 20k in student loans, 12k left on my auto loan, a 2k personal loan, and about $600 in credit card debt. I also have about 10k in savings. Also, my parents originally bought this house in 1981 and I was told by a lady at the Orange County Assessor's office that if I purchase the home from them prop 58 will allow me to inherit the 1981 tax rate if I file the forms to not be reassessed. Is this true, or is there more to it? Also, if I am gifted equity, will I have to pay some sort of tax on it? There is a lot to consider, and I am feeling overwhelmed/confused.

Thank you for taking the time to read this, I would greatly appreciate any advice/insight/feedback!

 

[FlyingRon]

No, your parents would be insane to give you ownership in the house now. Being on the "deed" isn't some sort of membership in a club, it is GIVING you a share of the house. Gifting away assets of people who are in the process of needing medicaid assistance can SCREW THEM out of eligibility. Further, having a non-senior on the deed precludes some of the other options that might be available to them such as reverse mortgages.

You all should talk to an elder law specialist before doing dangerous and irreversible actions. Understand YOU have no rights to equity or anything else from your parents and grandparents when they need that asset to pay for their care.

 

[LdiJ]

No, your parents would be insane to give you ownership in the house now. Being on the "deed" isn't some sort of membership in a club, it is GIVING you a share of the house. Gifting away assets of people who are in the process of needing medicaid assistance can SCREW THEM out of eligibility. Further, having a non-senior on the deed precludes some of the other options that might be available to them such as reverse mortgages.

You all should talk to an elder law specialist before doing dangerous and irreversible actions. Understand YOU have no rights to equity or anything else from your parents and grandparents when they need that asset to pay for their care.

I think that you may be thinking that OP's parents are older than they probably are. At the most they are going to be in their 60's if they are living with a parent themselves...and possibly in their 50's...particularly since OP has a minor child at home. Its highly unlikely that Medicaid look back is an issue at all for OP's parents, and won't be an issue for OP's grandparent unless something happens that makes her parents unable to continue caring for the grandparent in her home. Its also obvious the grandma must have more than social security as retirement or her income wouldn't be supporting the three of them.

Even if the OP is 40, that puts her parents at about mid sixties, and her grandparent well into her 90s...or everybody could be about 10 years younger. What is the odds that Medicaid will be necessary for grandma?

On top of that, the OP is covering the mortgage and upkeep of the home, and will be doing so for the foreseeable future, so any equity gained is based on the OP's efforts, not her parents. So there is a fairness/equitable issue involved. If her parents are mid sixties or even younger, is it fair that OP should service their mortgage until its paid off (20 years from now) only to lose the house if her parents need nursing home care and their income cannot pay for it?

My concern on this issue is that the OP doesn't make enough money to service a potential 375k loan...the current mortgage balance plus 150k for her parents...assuming that the house would truly appraise at 500k.

The obvious solution would be for the OP to buy the home from her parents at whatever price they decide between themselves is fair. The question is whether or not the OP can actually qualify to do that. I don't see an 80k salary qualifying someone for a 375k loan.

 

[studentmom]

No, your parents would be insane to give you ownership in the house now. Being on the "deed" isn't some sort of membership in a club, it is GIVING you a share of the house. Gifting away assets of people who are in the process of needing medicaid assistance can SCREW THEM out of eligibility. Further, having a non-senior on the deed precludes some of the other options that might be available to them such as reverse mortgages.

You all should talk to an elder law specialist before doing dangerous and irreversible actions. Understand YOU have no rights to equity or anything else from your parents and grandparents when they need that asset to pay for their care.

I am not saying I am entitled to the equity in their home... I am saying they have told me they would like to gift me equity in their home in order to allow me to stay in it, which is entirely their decision. From speaking with real estate professionals, this is a fairly common scenario.

 

[studentmom]

I think that you may be thinking that OP's parents are older than they probably are. At the most they are going to be in their 60's if they are living with a parent themselves...and possibly in their 50's...particularly since OP has a minor child at home. Its highly unlikely that Medicaid look back is an issue at all for OP's parents, and won't be an issue for OP's grandparent unless something happens that makes her parents unable to continue caring for the grandparent in her home. Its also obvious the grandma must have more than social security as retirement or her income wouldn't be supporting the three of them.

Even if the OP is 40, that puts her parents at about mid sixties, and her grandparent well into her 90s...or everybody could be about 10 years younger. What is the odds that Medicaid will be necessary for grandma?

On top of that, the OP is covering the mortgage and upkeep of the home, and will be doing so for the foreseeable future, so any equity gained is based on the OP's efforts, not her parents. So there is a fairness/equitable issue involved. If her parents are mid sixties or even younger, is it fair that OP should service their mortgage until its paid off (20 years from now) only to lose the house if her parents need nursing home care and their income cannot pay for it?

My concern on this issue is that the OP doesn't make enough money to service a potential 375k loan...the current mortgage balance plus 150k for her parents...assuming that the house would truly appraise at 500k.

The obvious solution would be for the OP to buy the home from her parents at whatever price they decide between themselves is fair. The question is whether or not the OP can actually qualify to do that. I don't see an 80k salary qualifying someone for a 375k loan.

Thank you, LdiJ! Your assumptions are fairly accurate. My parents are in decent health and in their late 50s and early 60s. I am in my early 30s. I have been 100% responsible financially for the house I am living in for over a year, but there is nothing in writing to show this. I was already approved for a 370k loan but the house has not yet been appraised.

I am weighing whether it is in my best interest to have my name added to the current mortgage and continue paying on that (with the plan to take out equity in the future under my name in order to pay off my uncle for my parents' half of my grandma's property), or if I should outright buy the home from my parents. There is a lot to consider, interest might go up, my grandma might live longer than we expect and housing prices might rise, etc.

 

[LdiJ]

Thank you, LdiJ! Your assumptions are fairly accurate. My parents are in decent health and in their late 50s and early 60s. I am in my early 30s. I have been 100% responsible financially for the house I am living in for over a year, but there is nothing in writing to show this. I was already approved for a 370k loan but the house has not yet been appraised.

I am weighing whether it is in my best interest to have my name added to the current mortgage and continue paying on that (with the plan to take out equity in the future under my name in order to pay off my uncle for my parents' half of my grandma's property), or if I should outright buy the home from my parents. There is a lot to consider, interest might go up, my grandma might live longer than we expect and housing prices might rise, etc.

If you can get approved for a loan then outright buying it would be better. However, you may find that it doesn't appraise at what you hope it will.