Help with Refinancing/Selling etc Decision

Financing, Hard Money Lenders, Private Money
1

I posted this earlier in the wrong forum. I hope this is the appropriate place and appreciate all input.

Hi all and thank you in advance for any suggestions you can offer.

Here’s the situation:

I own two homes in AZ. One is paid off. The second one is a home I purchased last year (almost exactly a year ago) and originally it was going to be a downsize for my wife and I that we would re-sell after about 5 years for a profit and then buy our final retirement home. We had planned to sell our primary residence (the #1 home) and move into the smaller home (#2) and it was financed as a primary with an interest only for 7 years. We never intended on keeping it that long and I was talked into doing the interest only because prices in AZ were rising so fast. The house HAS appreciated about 100k over the past year, actually. However, a month after we purchased the second home, our daughter was injured and needed to move here from CA and we had second thoughts about selling our #1 home in case she needed to live with us (and she has all this past year). We have done a little rennovation on home #2 and basically we just didn’t know what to do with it. We have talked a few times about my daughter moving into it but healthwise, she’s just not quite there yet…it will be at least a year before she can be on her own.

Last month I was approached by a good friend about renting the property (#2) to a family member of theirs who is very trustworthy and we know will take care of the house. This is not a typical rental situation – there are no worries. We decided to go ahead and rent it for the year and then decide what to do with it after the year but I’m afraid we are just getting deeper and deeper into a pickle.

The interest rates are going up daily it seems and I am really uncomfortable with having this interest only loan so I would like to re-finance. But I’m not sure if we should? If I don’t refinance and the interest rates continue to climb and some day we aren’t able to sell it, we could lose our shirts and this scares me.

We have also talked about selling it to my daughter but a bank will not give her a good interest rate…it would be high and she can’t afford that. The other thing we could do is keep the house in our name and she could live in it after the rental period we have set up already but then when we go to sell it a few years down the line we’ll get hit with the tax because we aren’t living in it as the primary residence if she’s the one living there.

WE just don’t know what to do. Our plans didn’t work out at all like they were supposed to and now we have a second home that seems to be a bigger problem daily.

So my questions are these:

  1. Should we try to refinance and if so, how do we do that? It’s not our primary residence but it’s also not exactly an investment property? Would it make sense to just borrow money on our #1 home and pay off the #2 so we can do whatever we want with it???

  2. If we rent it (and actually we really will need to because I agreed to this), after the rental period is over, can I move my daughter in and somehow sell the home to my daughter for basically FREE and get her name on the deed or??? and make her an owner so when we sell it, if she’s been there for two years she won’t have to pay taxes?

  3. Somene was mentioning something about trusts to us but can someone here tell me if this would have any benefits for our situation?

  4. Providing we can’t get my daughter in as an owner, when we do sell it in a few years, will we be able to avoid the taxes by buying another property for her to live in??

ANY HELP is much appreciated. We are just so confused and it’s not like we have a real estate lawyer at our beck and call so anything you can suggest or offer on this situation is helpful to us more than you know.

Thank you so much.

2

You can quit claim your daughter onto title right now and in 12 months refinance her onto the loan by herself to make her sole owner.

Or you can refinance her and a coborrower now, and 12 months from now refinance yourself off the loan.

What I recommend is getting out of this adjustable mortgage. If you got into a fixed rate mortgage you can relax about the payment jumping up on you and hold onto both houses for as long as you feel comfortable.

As far as the interest only loan goes. You should have gotten into either a 5 or 10 year term on the Interest Only period after which you begin paying principle and interest. This doesn’t usually affect the rate unless you are in an adjustable rate. It sounds like you may actually be in an option arm loan which adjusts monthly, which I suggest refinancing out of if you are going to keep the loan for a couple more years.

If you want to contact me I’d be happy to explain some of your options for you.

3

be careful adding your daughter to your title b/c if she has any medical bills, collections, judgements or anything that could be attached to your home you could not sell it or refi it w/o paying off her attachments. Also, attorneys have a computer system to find any property that a person is on title to…

  1. Should we try to refinance and if so, how do we do that? It’s not our primary residence but it’s also not exactly an investment property? Would it make sense to just borrow money on our #1 home and pay off the #2 so we can do whatever we want with it???

if you try to refi the (#2) house today as a non-owner occupied then your rate will be higher. also most refi cycles are in 5 -7 yr time horizons (meaning you really don’t need to lock in a higher cost fixed today)

  1. If we rent it (and actually we really will need to because I agreed to this), after the rental period is over, can I move my daughter in and somehow sell the home to my daughter for basically FREE and get her name on the deed or??? and make her an owner so when we sell it, if she’s been there for two years she won’t have to pay taxes?

Most lender will allow you to add her on to title (see above thoughts on adding her to title) as long as she does not own another home or she is currently living in #2 , then facilitate a cashout refi to pay off you. (she will inheirit your tax basis - so when she sell just determine today the probability of her capital gain exceeding future limits) Avoid down payment and Realtor fees.

  1. Somene was mentioning something about trusts to us but can someone here tell me if this would have any benefits for our situation?

Trust are mainly for avoiding Probate court at death, if you have a will or not you will need to go thru Probate to close out your estate. but if you have a trust you avoid the Probate nightmare and cost to the atty and court. also it protects assets from lawsuits. (ie) OJ Simpson is still living “large”…(bad example - but you get the point

  1. Providing we can’t get my daughter in as an owner, when we do sell it in a few years, will we be able to avoid the taxes by buying another property for her to live in??

the tax law changed in 1997 to now if you lived in the property 2 out of the last 5 yrs as your primary residence, your married (both claimed the house as primary) you have not utilized the exemption in the last 2yrs from sale then based on todays rules you would have a $500,000 exemption on capital gains…(seek professional guidance CPA or EA for your personal situation) if you live their 2 out of 5 and the remainder it was rented and your gain is greater than $500k ; take the additional $ and (1031 exchage it into another rental)

pls read my suggestion and repost your thoughts… so we can drill down deeper to help you make a more informed decission.

Good Luck