Photo by Zakaria Mohie on Unsplash

Question:

Five years ago my dad bought a house for me, though it was titled in his name. He put the down payment down and I have made all the mortgage, tax, and all payments for the house. I was going to buy the house from him this year and he unexpectedly died. I have two brothers but because the house is now in our dad’s trust I have to buy them out of my house. Can I take out a mortgage out for their portion of the house? And if so what kind of mortgage would it be?

Response:

I’m sorry to hear about your dad. His unexpected death, as well as Bob Saget’s, demonstrates the need for everyone to do estate planning and keep their plans up-to-date. It sounds like your father did do some estate planning, since he had a trust, but he may not have updated to take account of your house. I don’t know what your father had in mind in terms of the house or what the terms of the trust might be.

But you can buy the house from the trust, paying two thirds of the fair market value. You could obtain a standard mortgage from a bank or mortgage company. In theory, there should be no difference between your mortgage and any other. The only issue might be that the system is set up to grant mortgages in the context of property sales involving realtors. There may be some steps the bank requires that are usually carried out by real estate agents, such as making sure the property has sufficient smoke detectors. You would have to take on these tasks.

Another difference between your intra-family transaction and a house sale is that the fair market value will not be determined by putting the house on the market. You can use any value that you and your brothers can agree on. You could use Zillow as a guide, ask local real estate brokers if they would do a valuation, or get a formal appraisal. It seems to me that it would be appropriate to discount the value by 5% that would normally go to a real estate broker if you were to put the house on the market.

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