Best way to move home from parent to child

[blue]

My parents have a home that they would like to give to my sister but do not know what methods are out there. Here are couple that I read about, but wanted to get some feedback from those who have done this or know the tax and legal implications of it. So far, I have read of a Parent-Child Transfer and also selling the house to my sister and having her get a new loan.

Basically they have approx 30% equity in the house and they want to get a smaller place for themselves. My sister wants to keep the house so she wants to know what options are available at this point.

Any feedback would be appreciated. Thanks.

 

[usctrojancpa]

My parents have a home that they would like to give to my sister but do not know what methods are out there. Here are couple that I read about, but wanted to get some feedback from those who have done this or know the tax and legal implications of it. So far, I have read of a Parent-Child Transfer and also selling the house to my sister and having her get a new loan.

Basically they have approx 30% equity in the house and they want to get a smaller place for themselves. My sister wants to keep the house so she wants to know what options are available at this point.

Any feedback would be appreciated. Thanks.

They can quit claim the home to her and then she can get a refi (some lenders require 3-6 month title seasoning though).  Parent-Child transfers will not trigger a property tax re-assessment.

 

[Liar Loan]

If she keeps the existing mortgage current, she probably doesn't need to refi, as long as your parents don't mind if the loan isn't paid off immediately.  The lender could call the loan at any time if title transfers, but in reality they will probably leave her alone as long as the payments continue to come in on time.

Lenders have their hands full with people that aren't paying the mortgage these days, so they aren't going to get too excited about something like this.  If they do happen to call the loan, then have her refi.

 

[jvna]

If she keeps the existing mortgage current, she probably doesn't need to refi, as long as your parents don't mind if the loan isn't paid off immediately.  The lender could call the loan at any time if title transfers, but in reality they will probably leave her alone as long as the payments continue to come in on time.

Lenders have their hands full with people that aren't paying the mortgage these days, so they aren't going to get too excited about something like this.  If they do happen to call the loan, then have her refi.

So basically have her pay the parents' mortgage?  So the credit bureaus would think it's still the parents paying off the mortgage?

 

[Liar Loan]

If she started missing payments, then yes, it would get reported against the parents' credit, and on the flipside the daughter would get no positive benefit to her credit by making the payments.  The loan is still in the parents' name even though title has transferred.

This is the typical Fannie/Freddie due-on-sale clause:

Transfer of the Property or a Beneficial Interest in Borrower. If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.

If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is delivered or mailed within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.

So assuming the daughter is responsible, and the parents don't need to worry about her making the payments, the biggest risk is that IF the lender gives notice of acceleration (calling the loan) then the daughter would have 30 days to get new financing before a negative mark would be put on the parents' credit.  Getting a new loan in 30 days may or may not be problematic for people in this tightened lending environment.

Note that if the lender asks whether title has transferred then you need to answer truthfully.  Always do the moral and ethical thing.  Even if you told somebody at the bank, they probably wouldn't call the loan.  The average customer service agent isn't going to understand what a due-on-sale clause is.  In fact, the average customer service agent isn't going to know who Abraham Lincoln is (being from India).

 

[zubs]

Look into living trusts..there is some way to give an inheritance while parents are still alive....