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
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 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.
Have a tricky money question? Write to Dear Penny and you might see your question answered in an upcoming column.
Lisa Rowan is senior writer at Codetic, and the voice behind Dear Penny.
