Loan to buy half of Grandma’s house

new home, construction, for sale-1646668.jpg
Best way to go about it?
Posted by: chefmikey Jun 10 2003, 06:04 AM
My wife and I are unsure what to do about the situation we are in. Her Grandma passed away and left a large estate behind to be spilt with her daughter and my wife. We recieved a house worth about 120k and investments worth about 200k and half ownership on a vacation home worth about 300k. My wifes mother wants us to buy her half out of the vacation home. we would need to come up with about 150k cash. Shouse we finance a house and use the cash to buy her out? We dont want to touch the investments, and would like to know what we can do to be save us the most money, Thanks
Posted by: loanuniverse Jun 10 2003, 09:04 AM
Let me start by saying that my expertise is in commercial credit. My experience in consumer credit is limited, but I can come up with a few educated guesses.

The first thing that I would look into would be buying the 50% of the vacation house that you do not own in exchange for a note. This would probably be the cheapest way to go about it since there would not be much in the way of closing costs. You can probably get an attorney to draw a promissory note, a deed, and record the mortgage for a few hundred dollars. After all, they are nothing more than templates that only need the names and particulars filled in. You could offer your mother in law a return that she would be hard pressed to get in the market today.

However, this might depend on the kind of relationship that your wife and your mother in law share. Some people have a policy to not involve business with family. It could get complicated in the case of you defaulting on the loan and your mother in law having to foreclose on the property. Hopefully, the promissory note will be detailed enough to spell the remedies in case of default and there will be enough communication between the parties to avoid such a move.

If your mother in law will not accept a note in exchange for her share of the house or you do not feel comfortable with the arrangement, depending on your income, you could either get a loan on the vacation house or the other house you inherited. If your income is high enough, I do not foresee a problem getting financing. However, deciding which is the best alternative depends on many different factors and I could not tell you which is best without having all the information in front of me. Of the top of my head, these factors will influence your decision:

– Interest rate.
– Closing costs.
– Impact on income taxes of the new debt.
– Are your investments making you as much money as you will have to pay for the debt.
– Structure of the debt. (will you have to refinance)
– Prepayment penalty.

Hope this helps.
Author: Commercial Loan Underwriter