By Aarthi Swaminathan
My husband and I were approached by our son and his girlfriend about selling them our house and, in return, they would build an in-law suite on the land for us.
We’re just not sure of the best way to go about this.
Should we put them on the deed and then have them get a home-equity loan to build or should we do a line of credit and draw from that?
We’re not the savviest folks, so any help is greatly appreciated.
‘ 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.
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I’m worried about this situation of adding your son and girlfriend to the deed for one reason: Should things go south, where will you stay?
Look, an in-law suite is a great option if you’re living in an expensive city and are looking to downsize. They’re nowadays referred to as “Accessory Dwelling Units” or ADUs for short, and have been all the rage in various cities in California, such as in Los Angeles.
But you’re right in your implication, in that this decision to move into an in-law suite on land that you own isn’t that simple. You don’t ever want to be in a position where you could be thrust out of your own home, should the couple break up, or should your son decide to evict you for any given reason.
So here’s how I’d do it.
I’d first go ahead and build out that ADU, if I can tap on some funds. I’d pick out the ADU I like, the square footage I need, the number of bedrooms, et cetera. Fair warning: ADUs can run upwards of $150,000 , depending on what size you’re going for.
For that, like you said, it’s possible to take out a home equity loan for a fixed rate to build the ADU, or a line of credit, whichever gives you the best rate.
This way, if you end up not selling your home to your son, this ADU can be rented out to boost your income. It’s a great idea for homeowners in general to consider ADUs if you’ve got the ability – and the space – to do so.
So now to the deed. Putting your son on the deed is very tricky.
Putting them on the deed can trigger a series of events. When you add your son to the deed, that “is likely to trigger a tax event, as it will be treated as a gift,” Lori Trawinski, director of finance and employment at the AARP, told MarketWatch.
Adding them to the deed also affects your mortgage, she added. If you still owe money on the house, adding the couple may trigger the loan to become due and payable. Not sure you wanna do that if you still owe a lot of money on the house.
You need to present these two costs to your son.
Several other considerations: Are you selling the home at market rate? And if he’s buying, are you expected to pay rent?
You have to talk to your son to see if you’re expected to pay rent on that ADU, if he were to buy the house from you. You also want to make sure that there’s a legal contract of sorts that sets in stone the fact that you, as parents, will have the right to occupy the in-law suite.
It may seem like you’re helping your son out when the inventory of homes hasn’t gone up all that much. You may even want the home to stay in the family.
But even if it seems like a great idea at this point, you should take steps to make sure you retain a right to occupy the property, and fully understand the terms and conditions of the transaction.
And definitely consult an attorney or a financial advisor to deal with the nitty gritty details, which are almost always where mistakes and regrets lie in wait.
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