Co-Signing a mortgage - mortgage interest deduction question.

[Texas Proud]

Quote:

Originally Posted by Katsmeow Her parents are providing part (all?) of the $300k down payment. The picture I get is that they want to move to a particular school system which has expensive homes (around here $1.3 million is a mansion but I'm sure in California it isn't). She wants the current low interest rates but lacks the down payment and, likely, income level to be approved to buy the house with just her and her husband. The thing is that regardless of all of that she can't afford the house. She probably can't afford half the house. Why they can't live in the house gifted by the husband's parents is not stated. Perhaps it is the school system. If so, the better choice would be to pay for private school. Regardless, I can't see the OP doing this as being in the ultimate best interest of his niece or her husband. I don't think it is in their best interest to put them in a financial situation that is over their head and to put them in a home where they don't have the financial means of their neighbors.

I know the parents are kicking in the down payment... and the other parents kicked in a $650K house... so right there you are up to $950K for the $1.X house... now it is affordable... It also seem like either set of parents have the means to co-sign, but have not agreed to do so... to me that is telling...

I will agree with Martha... we are talking a different level than where I am... but look at Paris Hilton et al... not working for what you have can lead to other problems...

I also think that it is more of a status issue than a school issue... but who knows for sure from the posts here...

[Arnie]

If it is a good idea to co-sign, it is probably also a good idea to arrange for the monthly mortgage payment to be taken directly from your bank account.

[Disappointed]

Great advices, not that rich at all, just enough to afford that house. They do not want to sell that house right away because one, the husband's parents ask them to try it first without selling the house. Two, they have only owned the house since Sep 2010, to qualify for $550,000 capital apprciation tax, they still have to live there for the next 1 1/2 years. This is something that I just found out today and have sent them an email asking them how they are going to handle this situation. If they moved out to the new house they would lose that eligibility forever, 25% taxes of $450,000 to $500,000 gain would be at least $90,000, add that to the cost of the new house? If they stay where they are then they can't get the owner occupied loan, or they have to lie that they will live there. Both parents are retired and no ability to help co-sign on the loan.

mP

[sheehs1]

Quote:

Originally Posted by Disappointed Two, they have only owned the house since Sep 2010, to qualify for $550,000 capital apprciation tax, they still have to live there for the next 1 1/2 years. This is something that I just found out today and have sent them an email asking them how they are going to handle this situation. mP

Am interested in their answer to this. Good job! None of us caught that one.!

[Westernskies]

Quote:

Originally Posted by Arnie If it is a good idea to co-sign, it is probably also a good idea to arrange for the monthly mortgage payment to be taken directly from your bank account.

Excellent idea! And the Taxes and Insurance, too! Might as well throw in prepaid annual yard maintenance while you're at it.

[Keim]

The ref calls traveling on this one, Martha.

Even if the OP was hideously RICH it has little bearing here. It is not the nieces money until she inherits, it is the OPs.

The OP does the niece no favors by providing this economic outpatient care. The niece needs to learn to live on her own with what her family makes.

I have expected nothing from any of my well-off relatives, and they have yet to disappoint me!

I vote with the majority on this one.

Quote:

Originally Posted by Martha I'll throw a wrench into the consensus. What if the OP has a 100 million dollars net worth? And what if the niece is the only intended heir? Cosign, buy, whatever, so what? Is she really living beyond her means? There is a big down payment and the niece and spouse own a free and clear second home that they could sell if they can't service the debt. When the OP said he could buy the house outright with no real impact on his life I figured that he was in a different game than I am in. FWIW I'd still get a second mortgage to secure any sums I would be advancing now, plus any I might advance in the future, if for no other reason to protect the family interest in event of a divorce.

[Ally]

Just thinking back in time....I don't think having a generous uncle helping me get into a million dollar home would have helped me in the long run at all. At some point, you have to learn to take care of yourself and your family, live below your means and save money, none of which I would have done had I had a such a gift. I guess I should be thankful that my first husband ran off with his secretary and left me to care for 2 preschoolers. It was very hard, but I learned to appreciate the value of money and my children did, too.

[Major Tom]

Quote:

Originally Posted by Disappointed I do not like this situation one bit but she is my brother's daughter.

I arrived at this thread rather late.

Trust your first instincts, which are outlined in bold here.

[Martha]

Quote:

Originally Posted by Keim The ref calls traveling on this one, Martha. Even if the OP was hideously RICH it has little bearing here. It is not the nieces money until she inherits, it is the OPs.

I understand. But it is the OP's call. As you said, it is the OP's money. And his determination whether this is a moral hazard problem.

It sounds like the whole deal may be in jeopardy though due to the inability to tax shelter the gain on the old house for another year and a half. Though I suppose they could live in the new house for "awhile" and then move back to the other house for a year and a half (so they end up with 2 out 5 years in that house) and then sell it. They would have to check their mortgage to see how long they must occupy the new home. But that puts pressure on the neice's ability to service the debt.

[pb4uski]

Disappointed,

Any update? Curious as to what happened.

pb

[Darryl]

Disappointed, it is highly unlikely you are helping your niece and very likely you are hurting her and your familiy and your future relationship with your niece.

The reason the bank wants a co-signer is because they don't believe she can/will pay and they make their living evaluating these probabilities.

The smartest play is to walk away and let her live in the 600k house for a few years until her NW and income allow her to move up in house.

If you are desperate to participate in this deal you should either gift her as much as you can tolerate so she can qualify on her own OR buy the house yourself write up a mortgage and allow her to buy it from you, at least you can foreclose when the deal blows up.

[Darryl]

Quote:

Originally Posted by Ally Just thinking back in time....I don't think having a generous uncle helping me get into a million dollar home would have helped me in the long run at all. At some point, you have to learn to take care of yourself and your family, live below your means and save money, none of which I would have done had I had a such a gift. I guess I should be thankful that my first husband ran off with his secretary and left me to care for 2 preschoolers. It was very hard, but I learned to appreciate the value of money and my children did, too.

Ally, I'm reading this as you have survived and thrived I hope all is well.
I have had a rather charmed life and as I think back to the few setbacks I've had I can't think of any that didn't turn into a benefit to me as things unfolded. Examples include Dumb investments that taught me not to do that again. Wage freezes that drove me to budget better. Wage freeze was one year, better budget will last a lifetime. Job losses that resulted in finding a better job etc. etc. etc... Looking at it from a 45-50 year old perspective I'm sure if I had large gifts early on it would have hurt me more than it helped.

[chris2008]

IMO it is time for the niece to get beck to her responsible self and realize that she cannot have everything she wants to have without putting loved ones at high risk.

I probably would not support the purchase. If Disappointed already has made up his mind, he should at least ask for an option to purchase the expensive house at the amount he is in for in case of niece's default plus have a mortgage on the other house.