Advertisement
  1. Business

Dear Penny: I want to help my elderly parents by buying their house

The advice columnist tells this generous couple to be careful. It's more complicated than it sounds.
Published Jan. 3, 2019

Dear Penny,

My husband and I live in Florida and are paying a mortgage on our home. We want to help my parents out by buying their home in Maryland to help them pay off their debt. They will live there rent-free until they can no longer live on their own. They are retired and in their late 70s/early 80s.

My husband and I hope to retire in five years. Is there a right way and wrong way to do this? What do we need to be sure we do when we get the paperwork prepared?

-T

Dear T.,

This sounds like a super generous move. After so many years of turning to your parents for care and advice, this is, for many, the dream: to be able to return the favor. But caring for your parents in this way can have a lot of complications.

I called in help from two experts: financial adviser Stephanie McCullough, and financial adviser Andy Wang, who also hosts the Inspired Money podcast.

First: Can you afford to take on another mortgage in addition to your own? It's worth spending the money to discuss the long-term impact of this move with a tax professional and an attorney, Wang advised.

McCullough took her warning even further. "If I were your financial planner, I'd be advising you to look out for yourself and your husband," she wrote in an email.

Consider your upcoming retirement. What will happen when the paychecks stop and you have to start living on your savings? Look carefully at your cash flow and imagine what would happen if you or your husband lost your job, or became disabled prior to your target retirement date, she recommended.

Two technical matters Wang said to check on before moving forward: whether the loan is assumable, meaning you could take over mortgage payments by assuming the loan; and whether the loan has a "due on sale" clause that would require the loan balance to be paid upon transfer of property. The former might provide an alternative option for you, while the latter could lead you to pause on your plan to buy.

If there's a reason you want to own the house beyond your parents' tenure there — maybe it's been in your family for some time — you'll need to plan for that future, McCullough said. Unless you plan to eventually live there yourself, keep in mind that managing a rental from far away can be stressful.

Wang brought up one more "what-if": the possibility that your parents could outlive you. "You'd also need contingency plans in case something were to happen to you to ensure your parents may continue to reside there," Wang said.

What's your real motivation here: to keep the house in your family, or to provide financial stability for your parents? If it's the latter, it may be worth thinking about alternative options to support them while ensuring your own long-term financial security.

Experiencing an intergenerational financial dilemma? Write to Dear Penny at https://www.thepennyhoarder.com/dear-penny/

Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny. For more practical money tips, visit www.thepennyhoarder.com.

YOU MIGHT ALSO LIKE

  1. A "for sale" sign beckons Friday along Sixth Avenue N in the Kenwood area of St. Petersburg.
  2. Florida is better positioned than before the Great Recession, economist says.
  3. A rendering of the new Ulta created by Hennon Group Architects and included in the permits for the building filed with the City of Tampa.
  4. A rendering of the downtown Sarasota building that holds the office of Retirement Wealth Specialists.
  5. The Oaks Estate, a mansion owned by Lazydays RV co-founder Donald Wallace and his wife Erika. The property is a French-Normandy country-style gated manor build on Lake Thonotosassa listed on the market with an asking price of $17.5 million. It includes a main house, 2-story guest house, garage for up to 20 cars, workshop, pool house, gatehouse, horse barn with grazing pasture, indoor and outdoor pools, 2-story boat house, go-cart track, bowling alley and jogging trail pictured on Wednesday, Feb. 19, 2020 in Thonotosassa.
  6. It's not a bad time to be looking for a job. [Scott Keeler, Times]
  7. A burgeoning private insurance market looks to relieve pressure from the National Flood Insurance Program. Pictured is water from heavy rain in August 2019 on Snell Isle Boulevard NE. [Times (2019)]
  8. A pair of wood storks, left, and a large group of white ibis rest and feed in a wetland area off Loop Road in the Big Cypress National Preserve. Florida is home to more wetlands than any other state except Alaska. [DOUGLAS R. CLIFFORD | Times (2008)]
  9. People fill Community Cafe as drag queen Viktoria Sommers reads a Dr. Seuss book to children during Drag Queen Story Hour.  [Times (2019)]
  10. Tampa Electric Co. announced plans to double its solar capacity over the next three years.  Pictured is a Tampa Electric worker installing a solar panel on the roof of the Tampa International Airport economy parking garage in 2015. [James Borchuck | Times (2015)]
  11. Wawa and Coppertail partnered to create a craft beer that will only be at the gas station's Florida locations.
  12. The Publix at Channelside (pictured) opened in late August. Now the new store at Westshore in Tampa will open later this month. [OCTAVIO JONES   |   Times]
Advertisement
Advertisement
Advertisement