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Last April, I posted to another board here about my dad's death.

http://boards.fool.com/Message.asp?mid=23960458&sort=whole#23960846

Well, time has flown, and my mom and I have started making progress on getting on with our lives.

I have recently purchased a new condo, and we have a contract to purchase one for Mom in the same complex.

We are going to buy Mom's condo before selling her current house. The goal is to get her moved out, fix up a few things, and put it on the market. Once we sell her current house, we will pay off the mortgage on her new condo. We currently have the funds to fully pay off the mortgage on her current house and put 20% down on the condo.

Mom will turn 60 in July. She is presently only receiving a tax-free survivor's benefit monthly payment from the Federal government, who was my dad's employer. We are (hopefully) close to receiving a determination on the SSA disability benefits claim we submitted last June, but for now, we cannot count on that coming through as income.

She cannot get approved on the mortgage with just the survivor's benefit coming in monthly. Because I will not be living in the unit myself, it doesn't matter if I am a coborrower on the loan or not, and my employment and income are not taken into consideration.

The lender I am working with has told me that we could get Mom approved by herself if we secure monthly income of $833 for her, which we could do through IRA distributions. We do not, however, need this money to make the payments each month until we sell her house, so we would only want to do this in order to be approved and close on the condo loan. We would want to stop the distributions as soon as possible. I do not yet know if her IRA allows distributions to be changed more than once a year or not.

The other option is for me to buy her condo as an investment property. However, the interest rates are higher and I am concerned about capital gains taxes in the future as I will not be using that as my primary residence.

We plan to title the condo in both and my mom's name and mine, so once it is paid off (after we sell her house), does it matter that only I was on the loan?

I plan to speak to a CPA about all this but was hoping you guys could help me at least think about the situation in a coherent enough way that I will make sense to a CPA and have the right issues in mind.

Thanks for any insight or feedback you can provide!
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I have recently purchased a new condo, and we have a contract to purchase one for Mom in the same complex.

We are going to buy Mom's condo before selling her current house. The goal is to get her moved out, fix up a few things, and put it on the market. Once we sell her current house, we will pay off the mortgage on her new condo. We currently have the funds to fully pay off the mortgage on her current house and put 20% down on the condo.


Is that "we" or "she" with sufficient funds? I ask because if she has the money in the bank I'm having trouble understanding why she can't get a loan on her own. I suggest you post this to the Buying/Selling a Home board. There are some mortgage pros there who could give you better insight than you're likely to get here about the lending side of things.

From a purely tax perspective:

1. What kind of Federal pension does she have that is tax-free?

2. Have you checked to see if the offset provisions of SS will reduce her SS benefit?

3. I'd advise putting your name on the title to her condo. If you inherit it you inherit it with a basis stepped up to its FMV at that time. If you're 50/50 owners you get the stepped-up basis on only the half you inherit.

4. The IRA avenue sounds promising if you do need to temporarily boost her monthly income. She's in the "golden age" of IRA rules where she can take as little or as much as she wants. (I believe I saw in the linked post that she was 60 at the time.) I doubt seriously that the IRA custodian will be any trouble, but if they are just move the account to a custodian which understands whose money it is.

Phil
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Because I will not be living in the unit myself, it doesn't matter if I am a coborrower on the loan or not, and my employment and income are not taken into consideration.

This doesn't make sense to me. There's always a way. You need to find another lender or mortgage broker.

You should be able to cosign your mom's loan (so the house is in your mom's name only), or you can jointly own the house and jointly owe the mortgage.

I suggest asking on the "Buying a Home" board:
http://boards.fool.com/Messages.asp?bid=100144

(but to answer the question you asked: Since your mom turns 60 this year, she's eligible to withdraw any amount from the IRA, any time, and is not locked into any withdrawal schedule until she turns 70.5. But of course your custodian may have its own restrictions.)
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jinx
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(but to answer the question you asked: Since your mom turns 60 this year, she's eligible to withdraw any amount from the IRA, any time, and is not locked into any withdrawal schedule until she turns 70.5. But of course your custodian may have its own restrictions.)

It's possible that a portion or all of the IRA is invested in an annuity that is subject to surrender charges. Perhaps additional riders were purchased, intentionally or inadvertently, and making withdrawals of a certain size may invalidate the riders. There's a chance that the IRA is held by TIAA-CREF that has something like a 10%/10 year distribution schedule.

Bill
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3. I'd advise putting your name on the title to her condo. If you inherit it you inherit it with a basis stepped up to its FMV at that time. If you're 50/50 owners you get the stepped-up basis on only the half you inherit.

I'm pretty sure Phil meant to write "I'd advise NOT ..."

Ira
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How much do you have for the condo if you don't pay off her current mortgage? It seems reasonable to borrow less against the new residence than pay off a mortgage that will be cleared at sale.

Have you checked if you could co-sign for a second on her existing home without being on the title? It would allow the title for the condo to be clean and the mortgage would be cleared at sale. The interest on the second probably would not be deductible, but since her major income is tax-free, its value is limited.

Debra
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Thanks to everyone for sharing your thoughts and questions. I'll also post this to the Buying & Selling a Home board, but this is extremely helpful.

Is that "we" or "she" with sufficient funds? I ask because if she has the money in the bank I'm having trouble understanding why she can't get a loan on her own.

"She" has sufficient funds to pay off her existing mortgage and put 20% down in her IRA. "We" have about the same amount of money in a joint money market account.

What kind of Federal pension does she have that is tax-free?

She receives "Dependency and Indemnity Compensation" as the survivor of a military veteran.

Have you checked to see if the offset provisions of SS will reduce her SS benefit?

No...I'm not exactly sure what this means but when we applied for her SSA benefits, we were told that this other income would have no bearing on her benefit amount. We are applying for her to receive benefits on my dad's record as his disabled surviving spouse.

I'd advise putting your name on the title to her condo. If you inherit it you inherit it with a basis stepped up to its FMV at that time. If you're 50/50 owners you get the stepped-up basis on only the half you inherit.

If you truly meant "not" putting my name on the title to her condo, this is definitely something new for me to think about. I thought that by putting both names on the title, it would make things easier as we would avoid probate if something happened to one of us. I guess the 50/50 owners and 50% stepped-up basis would apply because I would not actually be a joint tenant?

The IRA avenue sounds promising if you do need to temporarily boost her monthly income.

Yes, I agree that this sounds promising. She will be 60 in July, so she is over 59.5 years old.

You should be able to cosign your mom's loan (so the house is in your mom's name only), or you can jointly own the house and jointly owe the mortgage.

I thought the same thing, but apparently the lender said that it would not make a difference in our situation. I will definitely check in with another lender or broker tomorrow to see if they have any ideas.

It's possible that a portion or all of the IRA is invested in an annuity that is subject to surrender charges. Perhaps additional riders were purchased, intentionally or inadvertently, and making withdrawals of a certain size may invalidate the riders. There's a chance that the IRA is held by TIAA-CREF that has something like a 10%/10 year distribution schedule.

The IRA funds were rolled over to an inherited IRA at Ameriprise Financial. About 10% of it is cash because I anticipated that we may need to get to it in the short term while we're working through all the real estate stuff.

How much do you have for the condo if you don't pay off her current mortgage? It seems reasonable to borrow less against the new residence than pay off a mortgage that will be cleared at sale.

We do not have enough to buy the condo outright if we do not pay off her existing mortgage. And the interest rate on the existing mortgage is approximately 1+ point higher than the new mortgage would be.

Have you checked if you could co-sign for a second on her existing home without being on the title? It would allow the title for the condo to be clean and the mortgage would be cleared at sale.

No, I haven't looked into this. I'm assuming this would be to take the equity out of her existing home to allow us to purchase her condo outright? I do not believe there is enough equity in her existing home for that. Her existing home is in the very, very affordable suburbs and the new condo is in the more expensive city.

I hope I've been able to answer your questions. I have to admit that some of the stuff you guys brought up is over my head, but it certainly gives me more to think about and investigate!
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If you truly meant "not" putting my name on the title to her condo, this is definitely something new for me to think about. I thought that by putting both names on the title, it would make things easier as we would avoid probate if something happened to one of us. I guess the 50/50 owners and 50% stepped-up basis would apply because I would not actually be a joint tenant?

Whether you live there or not doesn't matter for estate purposes.
If both of your names are on the title, when she dies you get a step-up on half the value. If it's in her name, you get a step-up on the whole thing.

Did you know that there is an active estate planning board here at the Fool?
http://boards.fool.com/Messages.asp?mid=25117611&bid=113006

Vickifool
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