Quartz countertops are nice but $ vs $ your call. Have you discussed any ADA modifications?
[quote]silverblood wrote:
Quartz countertops are nice but $ vs $ your call. Have you discussed any ADA modifications?[/quote]
It was difficult too because my mother in law was there and she’s very sensitive about that stuff. My wife mentioned having wider doors and her mom was like “What for? Why do you need that?”
The builder is aware of the situation and we’ll spend some time with him discussing the modifications without her. The “house” (we’re calling this one house not 2 for a couple reasons) is going to be on a hill. So our portion will need to be raised (a portion of the foundation will show), but the in-law portion should be (it better be) level or close to it. We have made it clear the point of the in-law rancher is so my in-laws won’t have to go up any stairs and having to go up stairs from the driveway kinda defeats the purpose.
I can’t wait to see how the drawings come back. We weren’t on the same page as far as setup goes at first, but I think we are now.
[quote]usmccds423 wrote:
[quote]silverblood wrote:
Quartz countertops are nice but $ vs $ your call. Have you discussed any ADA modifications?[/quote]
It was difficult too because my mother in law was there and she’s very sensitive about that stuff. My wife mentioned having wider doors and her mom was like “What for? Why do you need that?”
The builder is aware of the situation and we’ll spend some time with him discussing the modifications without her. The “house” (we’re calling this one house not 2 for a couple reasons) is going to be on a hill. So our portion will need to be raised (a portion of the foundation will show), but the in-law portion should be (it better be) level or close to it. We have made it clear the point of the in-law rancher is so my in-laws won’t have to go up any stairs and having to go up stairs from the driveway kinda defeats the purpose.
I can’t wait to see how the drawings come back. We weren’t on the same page as far as setup goes at first, but I think we are now. [/quote]
Tell her the doors need to be wider because, with a new gym in the basement, you’ll have problems fitting through them!
Our next step is working out the finances.
Here is the situation with that. Both my wife and I and her parents are still in our current houses. They own their house outright. We have almost no equity at all (bought in 2012). It’s important (for a couple of reasons) that the house & property be in our name. Of course the issue though is that we won’t be approved for the entire project (let’s assume $500K) on top of our current mortgage. I think we would be able to get close, but we certainly couldn’t actually afford it.
At this point we’re not sure how to structure the finances. We want to try to avoid moving (either of us) until the house is built or close to it. If we have to rent we have to rent. That’s just what it is.
Another issue is that my in-laws need to keep at least half of the proceeds on their house as a “just in case” medical fund. Our goal is to have a mortgage right around $300K, which should keep our mortgage payment about the higher PA taxes and slightly higher interest rate on the loan.
My wife and I think we can swing an additional mortgage on the land (approx. $800 a month). We’ve discussed my father-in-law taking a home equity loan to pay for the build. I see a couple of issues. For one thing he is only paying for his portion in total (up front he’s paying for some of ours because quite frankly we can’t afford it) and if he sinks all of his equity into the house we need a way (that is tax free) to get the money back to him. We’ve discussed the potential ramifications of gifting it back to him and from my limited understanding this might be possible and more importantly a perfectly legal way to avoid my father-in-law being taxed. We don’t want to pay him “rent” so he doesn’t have rental income when he retires in a couple of years. He can sell the house at below market value (the portion above can be/would be considered a gift) for the amount we want the mortgage to be. In this case we’d be hit with a 1% transfer tax, which we might just have to eat. It’s not a killer, but I’d rather put it into the house (for say a fence or something). Our primary concern is making sure everything is in our name just in case medicare or medicaid (whichever) wants to seize my father-in-laws assets if my mother-in-law ever needs to live in a nursing home (hopefully not, but we don’t want to take the chance).
Anyway if there are any bankers on here I’d love to hear any idea’s on financing the house.
[quote]silverblood wrote:
[quote]usmccds423 wrote:
[quote]silverblood wrote:
Quartz countertops are nice but $ vs $ your call. Have you discussed any ADA modifications?[/quote]
It was difficult too because my mother in law was there and she’s very sensitive about that stuff. My wife mentioned having wider doors and her mom was like “What for? Why do you need that?”
The builder is aware of the situation and we’ll spend some time with him discussing the modifications without her. The “house” (we’re calling this one house not 2 for a couple reasons) is going to be on a hill. So our portion will need to be raised (a portion of the foundation will show), but the in-law portion should be (it better be) level or close to it. We have made it clear the point of the in-law rancher is so my in-laws won’t have to go up any stairs and having to go up stairs from the driveway kinda defeats the purpose.
I can’t wait to see how the drawings come back. We weren’t on the same page as far as setup goes at first, but I think we are now. [/quote]
Tell her the doors need to be wider because, with a new gym in the basement, you’ll have problems fitting through them! [/quote]
Lol, that’s basically what we said!
A couple of things, first be careful of the gifting the money back to him. For 2014 the max amount you can gift is $14K person. So you and your wife can each gift each of your inlaws $28K for a total of $56k per year. I’m sure you knew this but I just was making certain.
As someone that has gone through the stress of having bought a house without mine being sold I would suggest selling yours first if you can.
Be careful about too open of a floor plan. We are having issues right now with it seeming like there is no where to go to have some privacy.
Is there going to be a basement?
[quote]Testy1 wrote:
A couple of things, first be careful of the gifting the money back to him. For 2014 the max amount you can gift is $14K person. So you and your wife can each gift each of your inlaws $28K for a total of $56k per year. I’m sure you knew this but I just was making certain.
As someone that has gone through the stress of having bought a house without mine being sold I would suggest selling yours first if you can.
Be careful about too open of a floor plan. We are having issues right now with it seeming like there is no where to go to have some privacy.
Is there going to be a basement?[/quote]
Hi,
Ya we’re aware of the gift annual limitations. My wife’s a CPA and an MST so we should be okay in that regard. She’ll work it out.
The cool thing is that our portion and there’s will absolutly be seperated so the open floor plan should be okay (we actually just decide not to knock the wall doewn between the living and family rooms. Instead we’re going to convert the living room into an office.).
Beleive me, one of my top priorities is privacy for all of us.
There’ll be a basement under both portions (not the garage).
You could gift it back to them in installments. $56k/year adds up quick. I didn’t catch how much you’ll have to pay back in total but it couldn’t be more than 3-4 years, right?
[quote]LankyMofo wrote:
You could gift it back to them in installments. $56k/year adds up quick. I didn’t catch how much you’ll have to pay back in total but it couldn’t be more than 3-4 years, right? [/quote]
That’s what we were thinking. I’m not sure on the total, but I don’t think it’ll be over $100K. We were thinking of even just gifting under the amount required to complete a gift return (I don’t remember the number) That would take a while though.
Part of how he’s going to get the money back, I think, is going to be by us paying all of the monthly expense. Everything from electric to cable. That’ll add up quick. Heating his portion, which is 1,200 sq ft not including the basement won’t be super cheap to heat.
One other thought was to just set x amount aside per month in a savings or money market account and then gift it to him all at once or in a few installments. That way it’s there in case of emergency and we can avoid the whole gift situation until later down the road.
[quote]usmccds423 wrote:
At this point we’re not sure how to structure the finances. We want to try to avoid moving (either of us) until the house is built or close to it. If we have to rent we have to rent. That’s just what it is.
…
My wife and I think we can swing an additional mortgage on the land (approx. $800 a month). We’ve discussed my father-in-law taking a home equity loan to pay for the build. I see a couple of issues. For one thing he is only paying for his portion in total (up front he’s paying for some of ours because quite frankly we can’t afford it) and if he sinks all of his equity into the house we need a way (that is tax free) to get the money back to him. We’ve discussed the potential ramifications of gifting it back to him and from my limited understanding this might be possible and more importantly a perfectly legal way to avoid my father-in-law being taxed. We don’t want to pay him “rent” so he doesn’t have rental income when he retires in a couple of years. He can sell the house at below market value (the portion above can be/would be considered a gift) for the amount we want the mortgage to be. In this case we’d be hit with a 1% transfer tax, which we might just have to eat. It’s not a killer, but I’d rather put it into the house (for say a fence or something). Our primary concern is making sure everything is in our name just in case medicare or medicaid (whichever) wants to seize my father-in-laws assets if my mother-in-law ever needs to live in a nursing home (hopefully not, but we don’t want to take the chance).
[/quote]
I don’t quite understand this. If your father-in-law pays for the build on a house that you’re going to own, then I think he’s making a gift to you. You could set this up as an uncollateralized loan. Then every year you could pay him back a certain amount and he could write off a certain amount of the loan without any tax consequences. I believe there is also a lifetime gift exemption as well.
It might also be a good idea to try to sell your house now, put most of your stuff in storage and try to get a short-term rental in the interim.
[quote]OldFatGuy2 wrote:
[quote]usmccds423 wrote:
At this point we’re not sure how to structure the finances. We want to try to avoid moving (either of us) until the house is built or close to it. If we have to rent we have to rent. That’s just what it is.
…
My wife and I think we can swing an additional mortgage on the land (approx. $800 a month). We’ve discussed my father-in-law taking a home equity loan to pay for the build. I see a couple of issues. For one thing he is only paying for his portion in total (up front he’s paying for some of ours because quite frankly we can’t afford it) and if he sinks all of his equity into the house we need a way (that is tax free) to get the money back to him. We’ve discussed the potential ramifications of gifting it back to him and from my limited understanding this might be possible and more importantly a perfectly legal way to avoid my father-in-law being taxed. We don’t want to pay him “rent” so he doesn’t have rental income when he retires in a couple of years. He can sell the house at below market value (the portion above can be/would be considered a gift) for the amount we want the mortgage to be. In this case we’d be hit with a 1% transfer tax, which we might just have to eat. It’s not a killer, but I’d rather put it into the house (for say a fence or something). Our primary concern is making sure everything is in our name just in case medicare or medicaid (whichever) wants to seize my father-in-laws assets if my mother-in-law ever needs to live in a nursing home (hopefully not, but we don’t want to take the chance).
[/quote]
I don’t quite understand this. If your father-in-law pays for the build on a house that you’re going to own, then I think he’s making a gift to you. You could set this up as an uncollateralized loan. Then every year you could pay him back a certain amount and he could write off a certain amount of the loan without any tax consequences. I believe there is also a lifetime gift exemption as well.
It might also be a good idea to try to sell your house now, put most of your stuff in storage and try to get a short-term rental in the interim.
[/quote]
Yes it could be a gift and yes there is a lifetime exception in the millions. We don’t want to set it up as an un-collateralize loan because A) that means the house would initially be in his name (see below) and B.) it’s my understanding you are still required to “charge” a minimum interest rate, which he would then have to recognize as income and pay tax on. Believe me, I wish it were that easy.
The other issue is that he can’t pay for the entire build even if he uses every penny of the equity in his house. He (understandably) isn’t going to put 100% of the expected value of his current house into the new one in case he needs to be liquid in the event of additional medical issues with his wife. He’s thinking he’s comfortable at $200K. Well the house and lot are going to be more like $450K-$500K. The goal is for him to only pay his portion of the house (about $150K) and for us to take a loan out for the rest. The issue is the bank isn’t just going to let us do that. We already have a $320K loan now. We also do not want my father-in-laws name associated with the house or property at all so medicare/medicaid can’t come after the property if and only if certain things happen. It’s a precaution on our part so we don’t get screwed 5 years down the road by the government.
We could sell, that would make the financing portion easier, but we would have to sell before getting the bank’s approval and ground is broken. So we’re looking at 6+ months of renting, storage, moving fees, etc… Not to mention little stuff like, what to do with our dog (I’m not walking him at 6 AM unless there’s no other choice). Ideally we want to all move into the house together from our current houses’ if possible. If we can sell our house and rent back that would be fine.
This would require a substantial amount of trust between both of you, but couldn’t he give your wife a gift of $150K and then make an unsecured loan to you of $50K? You could then apply the $200K towards the cost of buying the land and building the house. The gift would go against his lifetime exemption and the unsecured loan could later be converted to a secured second mortgage only after you’ve taken title to the house. Your in-laws wouldn’t own the house, and the only assets that would be in their name would be the $50K loan to you and whatever else they may own.
Also you’d now be putting down nearly 40% of the cost of the house, so you could probably get a preferential rate and maybe a no income verification mortgage (it’s been many years since I’ve bought a house so I’m not really familiar with current market conditions). The only way I could see this backfiring would be if your mother-in-law moved into a nursing home within a certain period of time and asked Medicare to pay for it. In that case, I think they can recapture any gifts made within a certain number of years.
Assuming a 5% interest rate on the loan, this might give your father-in-law $2,500/year of taxable income and give you a similar tax deduction. That’s okay though, because it would be real interest that he was earning. There’s also a multitude of ways that you could work things out so that you could incur certain expenses or do various things for them, and have them write off a portion of the loan against their gift exemption in return.
[quote]OldFatGuy2 wrote:
This would require a substantial amount of trust between both of you, but couldn’t he give your wife a gift of $150K and then make an unsecured loan to you of $50K? You could then apply the $200K towards the cost of buying the land and building the house. The gift would go against his lifetime exemption and the unsecured loan could later be converted to a secured second mortgage only after you’ve taken title to the house. Your in-laws wouldn’t own the house, and the only assets that would be in their name would be the $50K loan to you and whatever else they may own. [/quote]
This could possibly work. The $50K loan would still require interest income be picked up at a minimum rate, but that would be a much smaller $ amount of income that my father-in-law would have to deal with on his return.
We discussed how this was going to work in detail over the weekend. There was apparently a misunderstanding and now my father-in-law is okay with putting in $250K.
Trust isn’t an issue.
[quote]
Also you’d now be putting down nearly 40% of the cost of the house, so you could probably get a preferential rate and maybe a no income verification mortgage (it’s been many years since I’ve bought a house so I’m not really familiar with current market conditions). The only way I could see this backfiring would be if your mother-in-law moved into a nursing home within a certain period of time and asked Medicare to pay for it. In that case, I think they can recapture any gifts made within a certain number of years.[/quote]
Again, this could possibly work. I think, from what I’ve gathered so far, the loan will need to be secured by the bank in order for the builders to start. Of course they need to cove themselves, which I can understand.
I believe the recapture window is 5 years and that’s our biggest concern.
[quote]
Assuming a 5% interest rate on the loan, this might give your father-in-law $2,500/year of taxable income and give you a similar tax deduction. That’s okay though, because it would be real interest that he was earning. There’s also a multitude of ways that you could work things out so that you could incur certain expenses or do various things for them, and have them write off a portion of the loan against their gift exemption in return. [/quote]
Thanks for all the info!
I’ll have to discuss all this with my CFO 
This thing is getting complicated beyond belief. Surely your CFO CPA has access to CPAs who do financial planning like this.
As for the house, (a) 36" wide doors make furniture and appliance moving a lot easier; (b) my wife thinks upstairs washer/dryer is great choice, maybe locate it in garage attic off one of those bedrooms; (c) move powder room to the plan’s washer/dryer area to make living room/office wider; (d) I strongly recommend a 36" pocket door between the living room/office and the family room for instant utility and also resale’s sake; (e) how about making one of the bedrooms a short term office? You can always add on later.
[quote]biker wrote:
This thing is getting complicated beyond belief. Surely your CFO CPA has access to CPAs who do financial planning like this.[/quote]
Lol, ya she’s been discussing this with them as well.
[quote]
As for the house, (a) 36" wide doors make furniture and appliance moving a lot easier; (b) my wife thinks upstairs washer/dryer is great choice, maybe locate it in garage attic off one of those bedrooms; (c) move powder room to the plan’s washer/dryer area to make living room/office wider; (d) I strongly recommend a 36" pocket door between the living room/office and the family room for instant utility and also resale’s sake; (e) how about making one of the bedrooms a short term office? You can always add on later. [/quote]
Thanks for the input.
Landry room is up in the air at the moment. We were going to do a joint laundry room (2 washers 2 dryers) common area type thing. We would of converted the laundry room in the plans to a walk in pantry. We could move the powder room there, that’s a good idea. I’m not sure if the joint laundry room is going to happen now so we’ll see. We’re adding storage above the garage so perhaps we can work the upstairs laundry room. I’d prefer that actually.
We talked about turning a bedroom into the office temporarily. I like the first floor study/office idea very much. We’ve talked about a door to the family room and actually had shoot it down, but I didn’t really think about it. Will reconsider.
Thanks!
[quote]usmccds423 wrote:
Again, this could possibly work. I think, from what I’ve gathered so far, the loan will need to be secured by the bank in order for the builders to start. Of course they need to cove themselves, which I can understand.
I believe the recapture window is 5 years and that’s our biggest concern.
[/quote]
The important thing to remember is that whatever amount your father-in-law gives you as a gift is now your cash that you’re using to make a down payment on the house. It should be a lot easier to get a $300K construction loan if you’re putting in $200K of your own money as well.
Is the recapture window 5 years from the time she enters the nursing home or from the time she applies for medicare benefits. My understanding is that your in-laws must use up substantially all of their assets before applying for benefits. So if she enters a nursing home in 2 years and your father-in-law can cover the cost for 3 years, then it might work out. A good financial planner or lawyer might be able to help you with this. I can think of a few offbeat possibilities (like your in-laws divorcing, your father-in-law giving his half of the assets to you as a gift, then they reconcile and decide to live in your rental apartment), but that’s probably a bit too outlandish.
[quote]OldFatGuy2 wrote:
[quote]usmccds423 wrote:
Again, this could possibly work. I think, from what I’ve gathered so far, the loan will need to be secured by the bank in order for the builders to start. Of course they need to cove themselves, which I can understand.
I believe the recapture window is 5 years and that’s our biggest concern.
[/quote]
The important thing to remember is that whatever amount your father-in-law gives you as a gift is now your cash that you’re using to make a down payment on the house. It should be a lot easier to get a $300K construction loan if you’re putting in $200K of your own money as well.
Is the recapture window 5 years from the time she enters the nursing home or from the time she applies for medicare benefits. My understanding is that your in-laws must use up substantially all of their assets before applying for benefits. So if she enters a nursing home in 2 years and your father-in-law can cover the cost for 3 years, then it might work out. A good financial planner or lawyer might be able to help you with this. I can think of a few offbeat possibilities (like your in-laws divorcing, your father-in-law giving his half of the assets to you as a gift, then they reconcile and decide to live in your rental apartment), but that’s probably a bit too outlandish.
[/quote]
I believe recapture starts as soon as you begin receiving a benefit. In our case it would almost certainly be a nursing home situation. My understanding is that the in-laws have to use up a substantial portion of their assets and that if they do not then medicare can come after those assets. There are exemptions, like a car, but there are limits on the value of the asset being exempt. So you can’t buy a $100K car to avoid recapture. I don’t think they repossess your house, but my guess would be they’d recapture a certain value over the allowed exemption amount. That I’d have to look into further.
Hey folks,
So, I’m back. House plans have been drawn now we’re going back and forth with the bank. That’s why I’ve resurrected the thread. I’m going to post the back and forth with the banker and then ask some follow up questions hopefully someone here can help me with:
[quote] The banker wrote:
Here is an updated closing cost worksheet based on the changes made to your purchase price, State, etc. Please note that we are limited to 85% maximum LTV on a 2-unit property and can only offer ARM options; however, the rate is quite better than fixed rate price guarantee for the 1st 7 years before any rate adjustments occur. A refinance upon completion of construction could be available on a fixed rate product up to 75% loan to value. [/quote]
Q1) Is there a dollar threshold for the 85% LVT that limits us to the ARM only options? If we were to pay a larger down payment would we have the option of a fixed rate? As it stands Bob’s goal is to put his house up for sale on or around April 1st. If he brings the proceeds of his house sale to our closing (uses $250K of the proceeds as the down payment) how does that affect our financing option? Essentially, is there a way for the loan at closing to be a fixed rate and around $350K?
[quote] The banker wrote:
Standard CP guidelines allow us to offer a construction loan that converts to a permanent fixed rate product on 1-unit homes only. Enhancements to the standard CP guidelines are offered with portfolio products only; i.e. the 5/1 and 7/1 ARM. This allows us to offer you a single close CP loan up to 85% LTV for your 2-unit project. [/quote]
- You said a fixed rate refinance could be available at close. Why or why not would a refinance at completion be an option? If we refinance at close what will the costs be?
[quote] The banker wrote:
The maximum LTV on a fixed rate product from $417,001 to $517,500 loan amount on a 2-unit property is 75% LTV; below $417,000 it is 85% LTV. We can refinance the construction loan into a fixed rate permanent loan under these limitations, rather than modifying it to the permanent ARM loan. A refinance will run approximately $3400+/-. [/quote]
Am I understanding this correctly, a construction to permanent loan for a 2-unit home has to be an ARM under Fannie Mae guidelines; however, I can refinance (for $3400+/-) to a fixed rate as long as I meet the 75% of 85% LTV? Is this typical for a construction to perm loan? It just seems ridiculous to me that because my father-in-law’s house is being classified as a second dwelling (due to square footage) the only option is an ARM and an immediate refinance.
Thanks,
Chris
While having a house built can sound like a dream come true it can be a stressful nightmare. Having been there done that and know many that have here is some real solid advice.
Find a house thats 80% of what you want. Buy it as cheap as possible and make the modifications over time. Or if budget allows asap. This will mean less drawbacks in construction & you can skip on a slew of permits if you want. Also less fighting with spouse and contractors. Good luck