Mortgage Refinancing Tip for Adding Co Borrower
by MJN from Chicago, Illinois USA
Ask Kate for mortgage refinancing tip for adding co-borrower: Hello Kate, I am not upside down or behind in my mortgage. My husband and I bought a home in Downtown Chicago in 2005. Then in late 2007, he died. At the time of his death, I had not worked outside of the home in 20 years and our only child was a senior in college.
I owe less than $300k on a home I bought for 760k that, if I had to guess, would sell for around 625-650k. Not bad considering everything but not great either due to the fact that when I sell and downsize I will want to pay cash for my next home.
So I am going to continue to hold on to the property.
I went back to school after my daughter graduated and while I have finished the BA, I am taking several more classes to be certified and will hopefully be at work in the next 6 months.
My daughter is employed, has worked for three years, and makes 105K a year.
It is my desire to take my husband's name off the mortgage, put my daughter on (with my name) for tax purposes due to the fact that she has indeed been paying part of the mortgage.
While both my daughter and I have excellent credit, I am concerned I cannot do this due to my lack of work history.
I have the funds to pay off the loan but do not want to deplete funds I will need to take care of myself as I age. At the same time where I don't need the write-offs gained from home ownership my daughter does since she falls into a 25% tax bracket.
Is there anyway to add my daughter and remain on myself? Thank you for your time. MJN
Kate Answers: 4 Mortgage Refinancing Tips for Adding Co-Borrower
Congratulations on the equity in your home. It's nice to hear about!
In spite of your lack of work history outside the home, I think you should be able to refinance your mortgage, you'd be staying on of course, to add your daughter's name and take off your deceased husband's.
But I am wondering if it's actually necessary to go through the home refinancing steps to accomplish your goals.
Now before I continue, I have to say I am not a certified public accountant. So consult your CPA before taking any action.
1. Mortgage Refinancing Tip for Adding Co-Borrower - Refi Alternative
That being said, let me tell you about one of my previous mortgage customers. His family was growing and he really needed to buy a house.
But in spite of our best attempts to get his mortgage approved, a large IRS lien stood in the way. It was a complicated matter which he estimated would take years to negotiate.
In the meanwhile, his parents purchased the house in their name and he made the payments. But he was thrilled when his accountant told him if he could document that he was making the mortgage payments, he could write off the interest for tax purposes.
It seems to me the main reason for refinancing your mortgage is to help your daughter gain tax write-offs. If so, why not talk with your accountant to see if that is possible since she is making at least a portion of the mortgage payment.
You'd save a boat load on mortgage refinancing costs
and avoid the paperwork hassle.
2. Mortgage Refinancing Tip for Adding Co-Borrower - Paperwork
But if your accountant advises against this, make an appointment with your lender. Both you and your daughter should be present. Supply documentation showing that your daughter contributes to the mortgage expense, either cancelled checks or official bank statements, for the last 12 months.
Your daughter should also be prepared with her income documentation since she will be the primary wage earner. Go to Mortgage Information Planner
for a list of paperwork your lender will require.
Now I am assuming your daughter lives in the home also. But if she has her own place, she would be considered a non-owner-occupant co-borrower which could complicate matters, since you are not yet gainfully employed.
If this is the case, ask your lender if it would be better to wait until you have landed a job before proceeding with the refinance. Your college education will double as the 2 year work history requirement so you could proceed to refinance once you received your first paycheck.
3. Mortgage Refinancing Tip for Adding Co-Borrower - Mortgage Assumption
Another path before refinancing the mortgage would be to call your loan servicer. You will want the assumption department.
Ask if you could add your daughter to title and to the home loan using mortgage assumption. Mention that she makes a portion of the monthly house payments and that you have cash reserves equaling your mortgage obligation.
If you could use assumption to add your daughter to the mortgage and to title (you would stay on the loan and she would become your co-borrower), this would be significantly less expensive than a mortgage refi.
4. Mortgage Refinancing Tip for Adding Co-Borrower - Tax Consequences
Back to your accountant, ask if there would be any tax consequences to you or your daughter if she is added to title or the mortgage. I have seen some states look on family transfers as a purchase and tax the refinance.
Good luck and best wishes,
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