Would it be smart to get a mortgage now when we know we are going to be out of this house within a year???

Question

We have been in the house for 3 yrs already but the house was actually bought by my father(I didn't have credit built up at the time) so we are making all the mortgage/tax payments to him. We are wondering if we should get a mortgage for whatever we have left to pay on the house so we can build up equity in the next year before selling? What do you think you would do? The loan we would take out would be around 20,000 more than the house is worth so we can make some improvements to the house and pay off some of my husbands OLD debt so we would make one payment to our local bank. What are your thoughts and do you have any advice?
Thanks!! :)

Made a mistake! I did not mean borrow $20,000 more than the house is worth. What I meant was borrow $20,000 more than what we OWE on the house to make improvements(more landscaping, etc.) and to possibly pay off some of my husbands old debt. We have paid a lot down from when my dad first bought the house so our payment wouldn't be over what we pay now. We have done a substantial amount of work on this house already but have some more odds and ends to do before putting it on the market.

Answer 1

I think there are pros and cons both ways so you need to weigh your options. If you take out a mortgage you are going to have to pay for an appraisal, depending on where you live it could $300 or more. You have to be approved for the loan and pay closing costs. The first year's payments are mostly interest so you wouldn't be paying down the loan very much. You said borrow 20,000 more than the house is worth. That's never a good idea. If you borrow more than the house is worth then you won't be able to sell it for what it's worth and pay off the mortgage. You also have to consider what interest rate you would be able to get. If your credit isn't as good as your father's then your interest rate would probably be higher and if you are borrowing more than he did, then your payment would be higher. Talk to a bank and get some figures. Find out how much they would loan, what the interest rate would be and what the payments would be. Then sit down and add up how much you are paying now on the house and on your husband's old debts. See how much of a difference there is. If it's not much then I wouldn't go for the new loan. Just try to pay down the old debts yourself over the next year. Most people do not recommend refinancing if you are going to sell in a year because of the fees and interest .

Answer 2

You didn't have the credit rating before, and now you want to borrow $20K MORE than the house is worth? And then you're going to move within a year, so you'll have to sell it?

DON"T GET THE MORTGAGE. The fees to get the mortgage will be gone. The cost of selling it, whether you use a realtor or sell it yourself, will be gone. Unless the real estate market is experiencing galloping growth in your area, you likely won't get enough when you sell it to repay the balance of the mortgage, and then you'll be stuck with unsecured debt, an unhappy bank, and a lousy credit rating again. You'd be better off to just keep paying dad, plus pay down or pay off your husband's debts, and build up a good credit rating. THEN you can think about buying a house in your own name.

Answer 3

This would be wise, if the improvements are not over improving the house. As for the mortgage I would suggest that you get it into your name as this will help build your credit up even more over the next year.
Your home should of gained some appreciation unless your dad has taken it out as per your agreement. Do you make the payments directly to the bank or to your father? If you may them to him and not the bank then this will cause a problem as to how much you can borrow on the house.
Is you father going to sell the home to you or are you already on title?

Answer 4

You need to have your CPA, Financial Advisor and Attorney contact your dad's CPA, Financial Advisor and Attorney about this BEFORE making a move.

OK, I recognize that those people aren't really going to all get together on a conference call, but you and your dad are going to have financial and tax issues to work out.

Your dad currently owns this investment property that he's been renting to you. When he sells this house, since there has been some equity built up, there will be capital gains on it (taxes). If you buy it from him this year, and sell in less than two years, you also may be paying capital gains tax when you sell. Check with a tax advisor to see if any of this can be avoided before putting it into your name.