Author Topic: Helping parents buy house  (Read 1266 times)

Well Respected Man

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Helping parents buy house
« on: July 09, 2019, 08:40:26 PM »
I'm looking to help my parents (mother and stepfather) improve their housing situation, and could use some advice on how to structure financial agreements.

Their current house belongs to my mother, is paid off, and is assessed for tax purposes at about 160k, including land. The house is unique and would require a unique buyer or some updates to make it salable. I believe a mortgage on the current house is not possible for income and house uniqueness reasons. There is some urgency to get them into a new situation before winter because of health issues and heating the house with wood. But they cannot get the house ready to sell until next summer, so there is no money available from potential sale proceeds.

They are both on Social Security and pensions, plus a 401(k). I don't know the exact monthly amount available for housing, just that maintaining tax payments on the current house plus mortgage or rent on a new place would be a burden. I've committed (with strong encouragement from my wife) to help them get into a new place, and we have enough cash and securities in non-retirement accounts to either purchase a home in cash or put down a 50% downpayment.

Options that we have explored include:
  • Buying a two-family (~250-400k) and renting one unit to them
  • Buying a single family (~175-250k) and renting it to them
  • Buying a "double-wide" (~70-150k), writing a mortgage with us (wife and I) as the mortgagee, and having them own the dwelling and pay rent to the land owner

Option 3 seems to be the front runner at the moment, so that's where my question is focused. How easy or difficult is it to execute a private mortgage, and is it likely to be accepted by the company that owns the land? They have a requirement that the units be owner-occupied, so having us buy the unit outright won't work.

What I'm thinking is that the mortgage would have a term of like 50 years (they are 78 years old) with 0-1% rate, and a balloon payment due at the end of the mortgage. Essentially a permanent loan that we would recover from their estate(s), or that they could pay off if they chose.

Any advice or comments on these or other options are welcome.

reeshau

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Re: Helping parents buy house
« Reply #1 on: July 10, 2019, 03:10:05 AM »
What I'm thinking is that the mortgage would have a term of like 50 years (they are 78 years old) with 0-1% rate, and a balloon payment due at the end of the mortgage. Essentially a permanent loan that we would recover from their estate(s), or that they could pay off if they chose.

My FIL did something similar with his mother, as part of estate planning.  (different reason, but similar structure)  But be careful about how you write the mortgage; if it's not market rate, it could be deemed a gift.  Usually, you can address gift taxes in a straightforward way by writing them off from your estate exemption.  But it sounds strange to do so for someone you expect will predecease you--I don't know if there are any gotchas with that.  But mortgage rates are so low now, anyway, a market-rate, 30-year loan would probably be fine.  If that's not affordable, you could also just front them a down payment, anyway, and take care of any gift paperwork upfront, rather than committing yourself to it each year of low payments.

Linea_Norway

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Re: Helping parents buy house
« Reply #2 on: July 10, 2019, 04:47:30 AM »
Why are they not putting their current house out for sale now? Yes, it might take a bit longer to sell than a standard house. Isn't there anything you and other relatives can help with to get the house ready for sale more quickly? Are they planning to do extensive repairs? Can't they just sell it as a fix her upper?

In option one and two your buy your own asset which will become your own property. That sounds like a safe option. Then you could rent it out to them cheaply for the first year, and change the rent to normal market value after they have sold their home.

freya

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Re: Helping parents buy house
« Reply #3 on: July 10, 2019, 07:10:02 AM »
There are a number of ways that any of the plans you list can go wrong.   You could find yourself paying estate taxes on your own "loan", for example.  Keep your finances separate from your parents' at least until you've talked to an attorney.

What are the available senior housing options?  Renting an apartment is not a bad idea actually.  If you need to help your parents bridge to an apartment while their house sells, that's a whole lot less financial risk for you.  Are there senior housing communities in the area?  Their quality of life might be much better, plus it will be easier to access needed services down the line.

Also have you talked to a real estate agent about the house?  You could put it on the market now and see what happens.  It's certainly possible for someone to buy the house with the intent of knocking it down and building from scratch.  I wouldn't put a penny into it unless you're sure you'll get the investment back.

If renting is not an option for your parents, if I were in your shoes I'd buy a condo or townhouse, rent it to them, and consider it an investment property that you'll eventually either sell or rent out for income.   I don't understand your plans to buy a duplex, unless you're thinking of sharing it with them?

terran

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Re: Helping parents buy house
« Reply #4 on: July 10, 2019, 07:55:58 AM »
But be careful about how you write the mortgage; if it's not market rate, it could be deemed a gift.  Usually, you can address gift taxes in a straightforward way by writing them off from your estate exemption.  But it sounds strange to do so for someone you expect will predecease you--I don't know if there are any gotchas with that.  But mortgage rates are so low now, anyway, a market-rate, 30-year loan would probably be fine.  If that's not affordable, you could also just front them a down payment, anyway, and take care of any gift paperwork upfront, rather than committing yourself to it each year of low payments.

I've done a bit of research on this lately. It doesn't need to be a market rate, but you're right there does need to be some interest. The Applicable Federal Rate is the applicable rate. For long term loans (over 10 years) made in July 2019 that's 2.47% if compounded monthly.

In addition to non-charged interest being considered a gift, you will also be charged tax on what you would have received based on the Applicable Federal Rate even though you didn't actually collect the interest.

Here's the relevant law: https://www.law.cornell.edu/uscode/text/26/7872

Since you're not looking at loaning very much you don't really need to worry about the gift tax though. You can give up to $15k per person per year, so $60k across a pair of couples.

There are a number of ways that any of the plans you list can go wrong.   You could find yourself paying estate taxes on your own "loan", for example.

Given the situation described there's no way federal estate taxes will apply (estate must be over something like $11 million). State estate tax limits are sometimes lower. The lowest I could find was MA at $1 million. Some states have an inheritance tax (paid by the person who inherits money), which have lower or no exemption in, so that would be a potential issue.

Edit: both of these comments are US centric, which I think is a fair assumption on this forum without evidence to the contrary, but I see some of the replies (including one of those I've quoted) are from people not it the US.
« Last Edit: July 10, 2019, 08:07:53 AM by terran »

Well Respected Man

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Re: Helping parents buy house
« Reply #5 on: July 10, 2019, 09:58:23 AM »
Thanks for the replies.

To address a few questions:

The main reason they are not putting the house up for sale is my mother's emotional state. The current discussions are a progression from an original plan to maintain two homes, one for summer and one for winter. So maybe we can work on her to sell the house now, but Winter Is Coming.

The duplex possibility would be to put down a large downpayment, and charge tenants market rent in one unit, and charge my parents below-market rent in the other. It would also be the first building in our future real estate empire.

Regarding senior housing, this was off the table from the beginning. I'm thinking it would be too expensive also. Later: I looked into it a little, and there are low income options available, with a suggestion of a waiting list. They may qualify as low income, but not sure about that.

I have not talked to any agents about selling the current house, and I don't think my parents have either. I will suggest this, but I'm dealing with stubborn and emotional people here, not a spreadsheet. So I'm not expecting an immediate, enthusiastic "yes" response.




Villanelle

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Re: Helping parents buy house
« Reply #6 on: July 10, 2019, 10:07:40 AM »
So your mom isn't even sure she's going to sell the house?  That would be a deal breaker for all the possibilities, for me.  You can't want this for them more than they want it.  If she's talking about maintaining two homes, it doesn't sound like she is realistic about the finances.  You swoop in and solve their problem for them, and she has no reason to address the issue of the current home.  If they can't even talk to a realtor, clearly they aren't feeling any desperate need to get out of this house.  So why should you feel (and act on) desperation that the people actually in the situation don't share?

And it's not clear to me since you mention a 50 year loan--are you saying you wouldn't expect them to sell the house and pay off the loan if you bought a place for them?

Without a firm commitment, including specifics ("we will use the money that is freed up to fix X and repair Y, starting immediately, and will have that done and the house listed with ABC realtor by Feb 1."), it sounds like you might just be enabling more bad financial decisions. 

That said, regarding the duplex, how much total rent do you think you could get (FMV on one unit, and whatever you'd charge your parents on the other)?  Would you come anywhere close to 1%? 

Can you put a tiny house or trailer on your property?

Sibley

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Re: Helping parents buy house
« Reply #7 on: July 10, 2019, 10:14:20 AM »
Never try to help people more than they're willing to help themselves.

If they won't put the house on the market - you're done. You'll be happy to chat with them when they do that. If they will be in an unsafe or unsuitable home as a result, then unless one or both is debilitated to the extent that you can reasonably get Adult Protective Services involved for their wellbeing, then they've made their choice and they get to live with it. Good, bad or ugly.

Harsh? Yes. But sometimes the only option is to let the predictable consequences play out.

Well Respected Man

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Re: Helping parents buy house
« Reply #8 on: July 10, 2019, 11:30:07 AM »
So your mom isn't even sure she's going to sell the house?  That would be a deal breaker for all the possibilities, for me.  You can't want this for them more than they want it.  If she's talking about maintaining two homes, it doesn't sound like she is realistic about the finances.  You swoop in and solve their problem for them, and she has no reason to address the issue of the current home.  If they can't even talk to a realtor, clearly they aren't feeling any desperate need to get out of this house.  So why should you feel (and act on) desperation that the people actually in the situation don't share?

She is sure now, but wants time to empty it out and do a few (mostly unspecified to date) fixups. They know they can't be there in the winter, so they are kind of desperate. Desperate enough to consider the double wide option.

And it's not clear to me since you mention a 50 year loan--are you saying you wouldn't expect them to sell the house and pay off the loan if you bought a place for them?
Yeah, kind of like parking some money there, and getting it back when they die. If we think about an interest-only loan at 2.47%, that comes out to a little over $200/month for a $100k loan. Unfortunately, the double wides depreciate, so I'm not too keen on owning one of them. I'd rather own a "real" house with land.

That said, regarding the duplex, how much total rent do you think you could get (FMV on one unit, and whatever you'd charge your parents on the other)?  Would you come anywhere close to 1%? 
With FMV on two units, rent would be 1% or a little more than purchase price, and with say a 40% downpayment, a single unit would provide positive cash flow. I don't know that they would be able to afford even half of FMV, so I'll say roughly 0.75%.

Can you put a tiny house or trailer on your property?
I'm assuming you mean on my mother's property here. I know there's a zoning ban on mobile home type of trailers, but not sure about tiny houses. It's an intriguing idea though, as a potential temporary fix. My wife has always talked about that option for us.

Linea_Norway

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Re: Helping parents buy house
« Reply #9 on: July 10, 2019, 11:49:42 AM »
If someone would buy the home for replacing it with a new home, those fix ups might be a total waste of money. Talk to a broker first.

six-car-habit

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Re: Helping parents buy house
« Reply #10 on: July 10, 2019, 11:56:37 AM »
 *** I don't know the exact monthly amount available for housing, just that maintaining tax payments on the current house plus mortgage or rent on a new place would be a burden.****

  What do you mean by a burden ?   Heck , my water bill is a burden, but it still has to be paid if we want to be clean and hydrated.
 How much are taxes on @160K property ? How did they figure they could afford a summer [ the current home] and a winter house ?
 I think you do need to know their actual incomes before stepping further into the morass.

  Is there some reason you cannot spend , say , $$ 15-25K and buy them an installation of a modern heating system, electric style, or propane/ natural gas fired....this would allow them to stay in the home, relieve moms anxiety [?] issues , etc....???

Villanelle

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Re: Helping parents buy house
« Reply #11 on: July 10, 2019, 12:08:35 PM »
So your mom isn't even sure she's going to sell the house?  That would be a deal breaker for all the possibilities, for me.  You can't want this for them more than they want it.  If she's talking about maintaining two homes, it doesn't sound like she is realistic about the finances.  You swoop in and solve their problem for them, and she has no reason to address the issue of the current home.  If they can't even talk to a realtor, clearly they aren't feeling any desperate need to get out of this house.  So why should you feel (and act on) desperation that the people actually in the situation don't share?

She is sure now, but wants time to empty it out and do a few (mostly unspecified to date) fixups. They know they can't be there in the winter, so they are kind of desperate. Desperate enough to consider the double wide option.

And it's not clear to me since you mention a 50 year loan--are you saying you wouldn't expect them to sell the house and pay off the loan if you bought a place for them?
Yeah, kind of like parking some money there, and getting it back when they die. If we think about an interest-only loan at 2.47%, that comes out to a little over $200/month for a $100k loan. Unfortunately, the double wides depreciate, so I'm not too keen on owning one of them. I'd rather own a "real" house with land.

That said, regarding the duplex, how much total rent do you think you could get (FMV on one unit, and whatever you'd charge your parents on the other)?  Would you come anywhere close to 1%? 
With FMV on two units, rent would be 1% or a little more than purchase price, and with say a 40% downpayment, a single unit would provide positive cash flow. I don't know that they would be able to afford even half of FMV, so I'll say roughly 0.75%.

Can you put a tiny house or trailer on your property?
I'm assuming you mean on my mother's property here. I know there's a zoning ban on mobile home type of trailers, but not sure about tiny houses. It's an intriguing idea though, as a potential temporary fix. My wife has always talked about that option for us.

On her property would work as well, but I was imagining them selling their house (as they clearly need to) and living in a structure on your property. 

Since it sounds like none of these rentals are a sound financial choice, you might also look to rent them a cheap little apartment for the winter months only.  During that time they can fix up their house.  Then they can move back in when the worst of winter is over.  That's probably a cheaper scenario, and it doesn't allow them to procrastinate on what needs to be done with their home.   


Well Respected Man

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Re: Helping parents buy house
« Reply #12 on: July 10, 2019, 02:28:15 PM »
*** I don't know the exact monthly amount available for housing, just that maintaining tax payments on the current house plus mortgage or rent on a new place would be a burden.****

  What do you mean by a burden ?   Heck , my water bill is a burden, but it still has to be paid if we want to be clean and hydrated.
 How much are taxes on @160K property ? How did they figure they could afford a summer [ the current home] and a winter house ?
 I think you do need to know their actual incomes before stepping further into the morass.

  Is there some reason you cannot spend , say , $$ 15-25K and buy them an installation of a modern heating system, electric style, or propane/ natural gas fired....this would allow them to stay in the home, relieve moms anxiety [?] issues , etc....???

I think burden means that she in particular does not have enough monthly income to cover all expenses in the case there are two tax/rent/mortgage bills. The taxes are about $4k/year on the current house (high tax state).

The heating/new well/new septic/new bathroom would be the major items, which will not be done. I'm quite happy that they have not considered doing the major fixes, as I want the current house out of the family before it's too late (before I inherit it, for example).

I really don't know why she wants to do the other fixups, and I will try to dig into that, and get them to talk to a broker/agent.

freya

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Re: Helping parents buy house
« Reply #13 on: July 10, 2019, 03:03:34 PM »
If your parents don't want to move, that's pretty much the end of the story.  They'll only resent you if you try to push them to move before they're ready, and they may not care as much as you do about creature comforts.  "I don't want to move right now" is mom-speak for "I don't want to move".   This is almost a universal sentiment, too...very few people that age will agree to move until they seriously have no choice, and then their destination will be a nursing home, not an apartment.

Depending on what the climate is where you live, a very simple fix might be to buy a few of those oil filled portable radiators to get them through winter.  They are very safe, "set it and forget it" items.  And a lot cheaper than buying a duplex.

MayDay

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Re: Helping parents buy house
« Reply #14 on: July 11, 2019, 01:03:03 PM »
If they aren't in a place to realize they need to sell ASAP then you shouldn't be buying anything.

Find them a small "winter apartment" that they can afford in addition to the house. It can be tiny since they are keeping a house full of possessions. Either they like this arrangement fine and continue, or they get tired of it and become willing to sell the house.

Do not make this your problem beyond offering to help them apartment hunt.

six-car-habit

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Re: Helping parents buy house
« Reply #15 on: July 11, 2019, 03:07:01 PM »
*** I don't know the exact monthly amount available for housing, just that maintaining tax payments on the current house plus mortgage or rent on a new place would be a burden.****

  What do you mean by a burden ?   Heck , my water bill is a burden, but it still has to be paid if we want to be clean and hydrated.
 How much are taxes on @160K property ? How did they figure they could afford a summer [ the current home] and a winter house ?
 I think you do need to know their actual incomes before stepping further into the morass.

  Is there some reason you cannot spend , say , $$ 15-25K and buy them an installation of a modern heating system, electric style, or propane/ natural gas fired....this would allow them to stay in the home, relieve moms anxiety [?] issues , etc....???

I think burden means that she in particular does not have enough monthly income to cover all expenses in the case there are two tax/rent/mortgage bills. The taxes are about $4k/year on the current house (high tax state).

The heating/new well/new septic/new bathroom would be the major items, which will not be done. I'm quite happy that they have not considered doing the major fixes, as I want the current house out of the family before it's too late (before I inherit it, for example).

I really don't know why she wants to do the other fixups, and I will try to dig into that, and get them to talk to a broker/agent.

Hmmmnn - 4K taxes on 160K value is rather high.

I can see your point in wanting the house out of the family possesions now, so that you will not need to worry about future fixes in order to offload it.
Maybe bulldoze the house and sell the vacant land, although that would probably be a break even by the time you paid for demolition + removal....
Or , refuse that part of the inheritance, let the county gov't have it.

Cassie

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Re: Helping parents buy house
« Reply #16 on: July 11, 2019, 04:46:48 PM »
I would help them get the house ready to sell and rent them a apartment. At their age thatís the sensible choice.

debbie does duncan

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Re: Helping parents buy house
« Reply #17 on: July 11, 2019, 06:28:36 PM »
Your parents are adults and can help themselves. It sounds like Mom does not want to go bc she is making excuses to stay. Let them find out how cold it can get this winter and then they can rent an apt. You jumping in to rescue them only reinforces their Karpman Drama Triangle. Set a boundary and let adults help themselves.

Well Respected Man

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Re: Helping parents buy house
« Reply #18 on: July 11, 2019, 07:47:32 PM »
Thanks again for all the replies.

Regarding the advice to be harsh, let them fend for themselves, etc., they have not come to me asking for help; I'm offering my financial or physical help, because I'm in a very comfortable financial position, certainly at least partially because of my mother's financial sacrifices long ago. So I feel like I'm giving back, and not like I'm being taken advantage of. They are potentially physically unable to live in the house this winter, so what should have been obvious at least five years ago (and was to us) is now reality.

I'm in a position to help cushion the consequences of their poor planning, and will do so. I'll make sure that the solution is sustainable for them, based on their incomes, and including after one of them dies. There may be some kind of interim arrangement, but by next year at this time, there will be a permanent home that is acceptable to all.


former player

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Re: Helping parents buy house
« Reply #19 on: July 12, 2019, 01:47:05 AM »
I don't see that any idea on your parents' part that they will get the house ready to sell next summer has any basis in reality.  They are older and not able to cope with living in the house through winter: it's a dead cert that they are not able to cope with organising the big ticket upgrades you mention - if they were, they would have done it already. So that part of their plans is just wishful thinking, even if they had the money to pay for them, which I bet they don't.  I also bet that the cost of them won't put the value of the property up by as much as the cost of the upgrades.

As your mother is being stubborn about the house, I would try getting quotes from contractors for all the work, and getting an estate agent out to value the house with and without the work being done.  Then you have facts to discuss with your mother and those facts might help show a way forward.

I don't understand why if your parents like the idea of the double wide it has to be bought rather than rented?

Sibley

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Re: Helping parents buy house
« Reply #20 on: July 12, 2019, 08:00:39 AM »
@Well Respected Man I'm not saying you're going to be taken advantage of. I'm saying that IT WILL NOT MAKE A DAMN BIT OF DIFFERENCE. There is NO upside here.

Your mother does not want to move. It doesn't matter how much money you have, how much you're willing to help - if she doesn't want to move, then she is not going to move. All you will do is damage your relationship with her.

They haven't asked for help. You can offer, ONCE, to assist them in figuring out a plan and then perhaps implementing such a plan. After that, it's on them. They are adults. Without their active cooperation, you have a very limited list of options:

1. Involve the authorities to force them out of the house in some way
2. Mind your own business and let them manage things as they set fit.

It's great that you want to help, but until they decide to do something OR there's a crisis where something must be done, you are done. You can not help.

Villanelle

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Re: Helping parents buy house
« Reply #21 on: July 12, 2019, 09:35:18 AM »
Thanks again for all the replies.

Regarding the advice to be harsh, let them fend for themselves, etc., they have not come to me asking for help; I'm offering my financial or physical help, because I'm in a very comfortable financial position, certainly at least partially because of my mother's financial sacrifices long ago. So I feel like I'm giving back, and not like I'm being taken advantage of. They are potentially physically unable to live in the house this winter, so what should have been obvious at least five years ago (and was to us) is now reality.

I'm in a position to help cushion the consequences of their poor planning, and will do so. I'll make sure that the solution is sustainable for them, based on their incomes, and including after one of them dies. There may be some kind of interim arrangement, but by next year at this time, there will be a permanent home that is acceptable to all.

We aren't saying not to buy them a house because you should save the money for yourself.  We are saying it won't effectively address the problem, and that you may make it worse.  The house needs to be sold.  By allowing your parents to escape the worst parts of that, they are never going to accept what needs to happen, because life will go on just fine for them.

Use your money to help them fix the house they are currently in.  Or to buy some safe space heaters.  Use your tie and attention and love for your family to help them find a good realtor and follow that person's advice, and to help them find and manage contractors. 

Cassie

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Re: Helping parents buy house
« Reply #22 on: July 12, 2019, 11:35:21 AM »
First of all as a former social worker adults are allowed to live in some pretty bad conditions because they are not children unless they are incompetent. Adult protective services doesnít work the same way as childrenís.  So they cannot be forced to do anything.

frugaliknowit

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Re: Helping parents buy house
« Reply #23 on: July 13, 2019, 01:28:06 PM »
Help by walking them through the selling process including such things as interviewing realtors and maybe an appraiser, doing fixups to the house ahead of putting it on the market, then assist them with renting or buying another place.  If they won't cooperate, let it be.

There's no need to engineer something that might put you in harms way. 

Well Respected Man

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Re: Helping parents buy house
« Reply #24 on: July 16, 2019, 07:31:27 PM »
Ok, here's an update. I spoke to my mother by phone today, and agreed to loan her money on the existing house, enough for them to buy the double wide. So that would be about $90-95k. She will pay interest at the minimum level mentioned earlier in the thread, followed by a payoff of the full amount when the house is sold.

I brought up the points about interviewing 3 brokers ASAP (within the next month), having family help with emptying the house, and that basically the idea of waiting a year to sell is ridiculous, and she needs to put in a lot more (mental) effort in getting ready to sell.

I will be contacting a couple of real estate and lawyer friends in the area for advice on hiring a lawyer to help me with writing a mortgage, registering documents, and whatever else I need to do. I came up with the brilliant idea that I will hire an appraiser to give me an appraisal on the existing house, in case it's worth less than the amount I'm lending. I will be covering the costs involved with setting all of this up.

In terms of long term, she has income of about $30k/year, is the sole beneficiary of her husband's will, and does not have a will herself (lol). She will be drawing up a will as part of this whole mess. He has a 60k retirement account that he is taking minimum required withdrawals, Social Security, and a part time job, which he will keep for about 5 more years. She does not know whether her Social Security payments will increase or stay the same if he predeceases her (which is the expectation). The payments for land rental and taxes will be about 700/month at first, to be split equally between the two. Even if/when she has to pay the full amount, it would be 28% of her income, so it seems sustainable. In addition, if the house sells for $160k, that would be a cushion that could be used later or put into an annuity.