Taking over a house w/ mortgage as an "inheritance"

[jeromedawg]

Hey guys,

I was wondering what the options are for taking ownership of a house with a mortgage that would have been passed down as an inheritance. My in-laws have a house that they took a 30yr mortgage out on back in 2004 and were talking about "giving" it to us when they're retired and no longer want to live in it (aka can't afford to make payments on it because they will have stopped working). They were able to refinance at a much better rate several years ago and are currently renting out one of the rooms to help offset the mortgage. I'm wondering if it would be a good idea to take ownership of it if and when they decide to retire and move out of it, and just rent it out from there.

There's currently around $260,000 left on the mortgage to pay off. If we took it over would it just be a simple transfer of ownership of the deed (and also the mortgage/loan) and we continue paying at the same rate? Or would we be able to refinance and negotiate a better term upon taking over the mortgage? I'm not sure that we'd be able to rent it out per the 50% rule with the current mortgage payments that are due (e.g. if monthly mortgage payments are around $2000 and we can only rent it out for $2500-2700, that wouldn't be so great, right?). Are there other options or opportunities here as far as future inheritance/capital that would be beneficial for us? Or are we better off just letting it go and having them sell the place when the time comes for it?

[Drifterrider]

YOU need to talk to the bank that owns the mortgage (not us).  Is it an assumable mortgage?  Will you qualify for the same rate based on your FICO? 

Depending on your jurisdiction, you in-laws can "give" you the house by way of a Quit Claim Deed (there might be federal and state gift taxes involved) or you can "buy" partial ownership BUT the mortgage holder is where you need to start.

[Another Reader]

Most mortgages are not assumable.  They are callable upon the change in ownership - it's called a "due on transfer" provision.  Often the bank won't recognize there has been a change in ownership, but there is a risk, as the note is immediately due if they do.  Read the contract before you call the bank.

In California, if the parent dies and the child occupies the property as a primary residence, the child can do a "non qualifying assumption."  The child can assume the loan without qualifying for the loan.  Assumptions by a child in other situations are "qualifying assumptions" and are at the discretion of the servicing bank.