I’m buying a home with my 74-year-old mother, but the mortgage will be in my name. How should we title the house?

Dear MarketWatch,

I would like to see if you can provide me with some advice on purchasing a home with my mother who is 74. I will be putting down $240,000 — using the proceeds from the sale of my own house — on the new house and starting off with a mortgage of $220,000. The mortgage will be in my name only. Once my mother’s house sells, she is going to give me some of her home proceeds — $100,000, so I can recast my mortgage and lower my monthly payment.

Our questions are: How should we title the house that we both will be living in? Should we put both of our names on the house with joint tenants with right of survivorship? Also, will the money she gives me to put on my recast mortgage be considered a gift to me where I will have to pay taxes on it? Is there any way to avoid this? And my final question is, should I also put my adult daughter on the title of the house, also as joint tenants with right of survivorship, so that the house can be hers when my mother and I are no longer on this Earth?

If you are not able to answer these questions, would you be able to tell me if I need to talk to a real estate attorney, or a tax attorney or a CPA? I’m not sure who I need to ask these types of questions to. I do enjoy reading your column. Thank you for your assistance.

Sincerely,

Moving in with Mom

‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at [email protected].

Dear Moving,

It’s very sweet that you’re planning to buy a home with your mother, as I’m sure that will provide her with a sense of comfort as she gets older and needs more assistance. I know you didn’t ask for my thoughts on this arrangement, but I would be remiss if I didn’t suggest having many frank conversations with each other where you discuss your expectations for living together. This will be a big change for both of you, and as with any roommate arrangement it’s best to be on the same page ahead of time to ensure peaceful cohabitation.

I must admit that I’m confused with the timeline the two of you have chosen. Unless there’s a reason why buying the home on your own to start makes sense, I don’t see why the two of you wouldn’t wait a bit longer to purchase the home together — especially if you’re considering both being on the house’s deed. Pooling your resources at once could very likely enable you to take advantage of better financing.

A mortgage recast can be advantageous for many homeowners. It will allow you to reduce your debt obligation without changing the interest rate or term of the loan. At a time when mortgage rates are rising, that could be a better option to many homeowners than a refinance if your main goal is to reduce the amount of debt you have outstanding.

There are some drawbacks to this strategy. For starters, not all mortgage lenders allow for it, so this will need to be something you clarify up front. And even if a lender allows for it, they can’t do it for all loan types. Specifically, government-backed loans including FHA and VA loans cannot be recast. And the loan servicer will charge you a fee to recast. For these reasons, some borrowers will opt just to make extra payments to their mortgage rather than going through the full process of a recast.

In your situation, your mother’s contribution might be considered a gift if she’s not on the mortgage, though you wouldn’t be the one to pay taxes on it. You should consult an accountant to get their expert advice, but it’s likely she would need to file a gift tax return. That said, unless she’s gifting millions of dollars to you and others, it’s likely that she won’t ever owe taxes on that money because of the lifetime exclusion.

She can be on the title without being on the mortgage, but it’s not necessarily straightforward. If you’re thinking about adding her to the deed later on after you’ve bought the home and taken out the mortgage, you should consult a real-estate lawyer. Some lenders will include clauses stipulating that the loan must be paid back in full if significant changes are made to the home’s title, and you will want a legal expert to review any mortgage contract to verify whether that would be the case here.

If you’re instead planning to have your mother on the deed from the start without having her on the mortgage, you will need to consult with the mortgage lender to get their approval for this arrangement. As New York-based real-estate lawyer Victoria Spodek explains in a blog post, “The bank must be certain that their interest is protected, because they are lending a large sum of money. The bank’s ability to sell the property in the event of the default is critical to their model and they will not lend money unless they are protected.”

The problem that can arise by having multiple people on the title, but only one on the mortgage, is that ownership of the home becomes complicated. From the lender’s perspective, your mom would have rights to the home that could make it difficult to sell if you went into foreclosure. So what lenders often do in such a scenario, Spodek says, is have both owners sign the mortgage, while only one person signs the note, which is the promise to pay back the loan. This way, “if the loan is not paid or goes into default, then the bank will still have recourse to sell the home to get repaid,” she writes.

Again, you might want to consider having your mother listed on the mortgage. Unless she has credit problems, her additional Social Security income and assets could help get you a better rate on the mortgage. It would also alleviate issues that would arise from having her pay down the loan when her house sells.

As for how you title the home, I do think it’s important to consider why you wish to both be on the title and what your goals are in that. It seems clear that avoiding probate is important to you both, but joint tenancy can carry some risks. For instance, if one of you goes into debt and cannot repay it, creditors could lay claim to the property. That’s also why adding your daughter to the title as well could be a risky move.

For you all, putting the home into a living trust may make the most sense. This will give you control over what happens to the home when you and your mother each pass away, while allowing you to remain in the home while you’re both still alive. Not only can the home easily pass to your daughter, but she could avoid certain taxes and probate fees. You will need to hire a lawyer to draw up the trust and structure it properly for you, but given the complexities of your living arrangements this might be the best solution to your problem and provide you and your mother assurance that you will be able to live in this home for the rest of your days.

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