Can I afford it?

[Anonymous]

Hi everybody;

I want to buy my parents the best christmas present ever. A new house. They have spent the past 8 years renting a small apartment, because they can't get approved for a mortgage. I, luckily, have great credit, and I have an amazing job, and I have the ability to buy them a house for christmas. I have been looking at houses around $300,000. I haven't told them about this yet, because I'm not sure if I can afford it (safely for me) or not. Alright here are my finances:

ASSETS:

$149,159 In Liquid Assets

$439,102 In investments

$150,810 in Retirement

$460,000 in Real estate

$56,000 Car

LIABILITIES:

$28,800 Student Loan

$4,693 Credit Card Debt

$30,670 Auto Loan

$198,442 Mortgage

INCOME:

$11,797/Month from Employment

$1,200/Month in Rental income

EXPENSES:

$7,852/Month (Mortgage payment, Auto payment, Loan payment, Credit card payment, and other bills)

I have been thinking about taking the money for the house out of my investments. My parents won't pay rent, because it is a gift to them. So, What do you think? Can I afford it?

Thanks for any help! Its really appreciated!

[IOBA]

If you can pay cash for the house, then yes.

But doing that will cash out your reserves...

If I did the math correctly, your debt to income would be too high to qualify for another mortgage yourself.

Do you include your rental income on your taxes?

Have you thought about a less expensive house for your parents?  I don't know the area you are considering, so I am not sure if 300k buys a shack or a mansion.

Very nice thoughts though...

PS - have you talked to your parents about it?

[Varakai]

Not quite sure if you can gift a 300K home or not without someone having to pay some taxes. Why not purchase the home and let them live there rent free. The home stays in your name and when something happens to your parents financially in the future, creditors can't go after their home since it belongs to you. It also prevents siblings from going after the house if your parents would pass away. Something to think about. I would consult an attorney and accountant if I were you.

[Anonymous]

No, I haven't talked to them about it yet, because I don't want to guarantee something that I can't do. And where I am looking, 300k would buy a decent sized, 3 bedroom, 2 bathroom house. I have thought of spending less money on the house, but I want them to be in a better neighborhood. 300,000 would be my limit, I would go as low as 250,000. And I didn't say this in the first message, but I would purchase the house, with my parents, (Once I am sure that I can afford it) and have them put in the offer, and I will pay the seller, so there is no extra tax being put on the money that I give to them for the house. 

[Anonymous]

Also, once they take over the house, and the deed, I am having them put in their will that the house will automatically be returned to me (or my children) in the event of their death, and it can not be sold, or mortgaged while they are living there, so I won't get screwed. 

[Anonymous]

Or, I could take money out of investments, pay off the mortgage on my rental property, student loans, and car loan, and then buy their house with a mortgage, But then I would need to keep the house in my name, which I don't want to do. But it's a possibility.

[Anonymous]

I went to the bank after work today, just to see if I could get a pre-approval for a mortgage, and they told me that I could be pre-approved for a $225,000 Mortgage at 4.62% with 25% Down. Should I do a mortgage, or pay cash for the house? If I do a mortgage, I will just let my parents live there rent free, and once they pass away, I will either sell it, rent it out, or give it to my children. Any help? 

[IOBA]

I would suggest cashing out your investments and paying off some debt.

Take out a mortgage for your parents house.   Keep the mortgage and title in your name.

By keeping it in your name....

1.  You can deduct the interest and taxes off of your taxes.

2.  Some times older people are targeting/harassed for debts (legit and not so legit) and having a paid off house would be a target.

3.  If something happens and you need to take out equity in the future, you could from the house.

4.  Sometimes, people (of all ages) get confused and sign away the house.

5.  Sometimes, people (of all ages) are embarrassed to ask for help in any way.

I can share with you that your parents would be prime candidates for a reverse mortgage --- my parents were approached (even though they had a mortgage) for a reverse mortgage.   Almost everyone I know who is over age 60, who owns a home, has been approached to do a reverse mortgage.

If you do give them the gift of a house, keep the house in your name.   A "will" will not protect the house from anyone's actions while they are alive.   Thus, you can't enforce the rules of the will until they are dead.   You can't stop your parents from accidentally signing over the deed, or taking a loan out against the house.   Or from a sibling/relative from tricking your parents.   Or from your parents from altering the will. 

The bottom line is if the house is in their name, they have total control over the house and you can not assert any claims to the house.   

Give them the gift of the house but keep the house in your name.   You pay for maintenance, taxes, insurance, etc.  

Please let us know what you decide to do.

[Anonymous]

Hmm. Thanks for the help. I think that I'm going to do that. Do you think that I should sell a lot of my investments and pay off all of my debt? Or sell some, and pay off some? 

[Walt_K]

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@Anonymous wrote:

Hmm. Thanks for the help. I think that I'm going to do that. Do you think that I should sell a lot of my investments and pay off all of my debt? Or sell some, and pay off some? 

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I think you should sit down with a financial planner.