What would you do ? (edit: complicated inheritance / purchase situation)

yourdeadwright · 17-07-2023 3:34pm #1

I have a close friend who has come into some inheritance , So basically himself ,his wife & 3 small kids have been living in his grandmother's house for 4 years rent free in Dublin, She was in a home during this time & has recently passed away,

Now himself & his sister own the house 50/50 & made an agreement when she passed they would sell it , that time has come now,

In that past 4 years he has been working away & so has his missus but short hours, he lost a good job 2 years ago & has had to restart so isn't on a very good wage yet , So basically they are making about 50 grand between them right now but he has little to no saving's right now,

The big questions is what does he do with his share which will end up being just north of about 250grand ,

Does he go rent while he tries to up his wages & save

Does he move down the country & buy a house he can afford with the money he can work form home in his new job or could try get a new job,

Does he move aboard where houses are cheaper & try start again ,

What would you guys do ?

banie01 · 17-07-2023 3:37pm

Is buying his sister's share out not an option? 4 years of rent free living have surely allowed a substantial deposit to be saved? And as the LTV is 50% some discount can likely be brokered on interest rates.

yourdeadwright · 17-07-2023 3:51pm

https://www.boards.ie/discussion/comment/120863229#Comment_120863229

This is the first thing question i put to him but he reckons because he has literally zero savings, He wouldn't get a mortgage for the 250 grand,

He doesn't have a savings as he put his own money into his previous job/company that went tits up ,

banie01 · 17-07-2023 3:56pm

https://www.boards.ie/discussion/comment/120863295#Comment_120863295

IMO, unless he moves rural? He will be hard pressed to find a home that suits a family of 5. Certainly not in commuter distance of Dublin and even in the regional cities he's on the cusp of what decent 3-bed semis are trading at.

With 50% equity I'm sure a broker could swing something? That or he tries to come to a rent to buy arrangement or at the very least explores what funding he can raise from his own equity stake to buy her out.

Princess Calla · 17-07-2023 4:00pm

I've a funny feeling your friend will take his inheritance, rent somewhere beyond his means and in 5 years time the inheritance will be used up and he'll be scratching his head wondering how did that happen.

I mean if you can't manage to save ,when both people are working and you're not paying rent , I honestly can't understand that.

This day was inevitable.

Even with 50% of the house owned I'm not sure he'll get a mortgage for 250k with a combined salary of 50k and 3 dependents.

They should have been saving hard to be able to buy the sister out but obviously they didn't.

Unless their parents are also dead their inheritance threshold from revenue is low, though as he was living in the house prior to death he might be able to claim a relief.

In theory he should buy a house that's around 350k and only need a 100k mortgage but how he gets to that point is going to require some logistics as there will be a lot of moving parts , he'll probably need to rent between sale of house and purchase of new one .

yourdeadwright · 17-07-2023 4:15pm

https://www.boards.ie/discussion/comment/120863338#Comment_120863338

That's the hole he doesn't want to fall into ,

He was doing quite well on the saving front for 2 of the 4 years then the failed business & two of the 3 kids coming in the next two years put he quite a way back ,

It's what he does next that will likely define how they are set up for life,

I suppose another option is to talk his sister into giving him an extra 6 months & saving like mad, but i suppose that depends on how she is set up at the moment,

1percent · 17-07-2023 4:19pm

Firstly, if he had the deposit to buyout the sister would he want to? Does he like the house/area? If so, Can he rent the sisters half of the house for the time being and save up for the mortage? Would she agree to that? Rent a room may be applicable. He should talk to the sister, an accountant and a solicitor together if that was goes case.

If they were to sell he would have the 250k as a deposit, ask the sister if she would mind slowing the sale by 6months so that he can show a hisory of savings to a bank for a mortgage. €2000 a month will be good for 400k approx but he needs to get his ball park 4 times number of what they will be lent and then show he can afford to pay it by saving the mortgage payment for 6months at least.

Back of a fag pack if they are on a household income of 50k they can get 200k over 30years if they show they can save 800 a month. That will give them 450k plus the 4800 saved to buy elsewhere. Half decent old semi Ds in Tallaght or Rathcoole area.

Princess Calla · 17-07-2023 4:27pm

https://www.boards.ie/discussion/comment/120863416#Comment_120863416

He should look into "dwelling house" on the revenue website.

Probate takes time, so he should try and stay in the house for as long as he can.

I presume the nursing home is also looking for proceeds from sale if fair deal was used.

The best thing he can do now, I think, is cut back on absolutely everything, try to get as much money together as he can.

Try to stay living in the house for as long as he can.(without p1ssing the sister off).

Princess Calla · 17-07-2023 4:45pm

https://www.boards.ie/discussion/comment/120863434#Comment_120863434

I don't think renting is an option.

There's already 5 people living in the house.

There's not many parents that would be happy to rent a room to a stranger when there's young kids in the house.

Equally there's not many people who would like to rent with an owner occupier family.

1percent · 17-07-2023 5:31pm

https://www.boards.ie/discussion/comment/120863529#Comment_120863529

Sorry I ment RAR from the sister, so his partner and kids rent from the sister with the friend being owner occupier, sister gets upto 14k tax free. That's why I said "may apply" and talk to an accountant to make sure it would be kosher with Revenue.

It is entirly possable that I am talking out my hole and what I am suggesting won't fly

Edit: in the event what I'm suggesting works, the payment to the sister would count towards affordability for the banks too

the_amazing_raisin · 17-07-2023 6:52pm

Okay based on what I've heard, he'll have €250k savings plus up to €175k mortgage based on 3.5 times his earnings of €50k per year?

€425k could (in theory) buy a 3 bed house in and around County Dublin. It won't be in Dublin 6W, and it's probably not going to be a very big house but it should be doable

If they're willing to commute then they can look further afield to see if they can get something bigger

In general I would say to someone that if they have the opportunity to purchase a house they should go for it.

There's a lot said about generation rent but the truth is that if you're renting your money is going nowhere. You'll never have the opportunity to buy the place for yourself and your expenses will only go up

At least with a mortgage if you at a minimum meet the repayments, you'll eventually own the place, and there's the opportunity to pay it off sooner

I would advise your friend immediately starts speaking to a mortgage advisor and get a concrete figure about how much they can borrow

They need to then start looking at houses and see what's available and be ready to put in an offer and deposit when something comes up.

SteM · 17-07-2023 8:26pm

https://www.boards.ie/discussion/comment/120863683#Comment_120863683

It would have to be the sister's primary residence for RAR to apply, no?

herbalplants · 17-07-2023 9:48pm

Does he like the house? Then work an arrangement with his sister to pay her every month for what he owes.

herbalplants · 17-07-2023 9:48pm

Someone raise a very valid point. Is the nursing home not looking for their share off that house?

Princess Calla · 17-07-2023 10:10pm

https://www.boards.ie/discussion/comment/120863913#Comment_120863913

Until the cheque from the sale of the house is sitting in his bank account I'm not sure how forthcoming a mortgage lender is going to be.

Probate takes time.

Even if they did allow borrowing on the basis of a future lump sum I can't see them waiving a 10% deposit, so he'll still need 42k plus a rent contingency back up plan.

Plus once you get into the Nitty gritty of mortgage underwriting as far as I can remember each child you have deducts how much you can borrow. It all goes into a sress test algorithm again as far as I can remember

As it stands him being unable to save while living rent free is a massive massive red flag.

I get there were legitimate reasons for that but an underwriter is looking at numbers and risk.

the_amazing_raisin · 17-07-2023 10:33pm

https://www.boards.ie/discussion/comment/120864591#Comment_120864591

He should be able to get an approval in principle based on his current income and savings, just to see what's available

It won't be enough to buy a house by itself but the approval lasts for 6 months if I remember correctly and is easier to renew than apply from new

So it'll help the guy make an informed decision on what he can and can't afford. You're right they'll probably not offer the full 3.5 times salary given he's got 3 kids, but I'd say it's better to find out now rather than waiting for probate to finish

I'd start looking at houses now as well, not so much to make an offer now but to feel out the market. You might spot houses that are listed for months on end indicating they're overpriced and may be open to a lower offer

It's also worth starting to keep track of the asking price versus the actual selling price in the property price register. That'll help determine if houses are being priced lower and bidded up

Maybe it all comes to nothing and the inheritance after probate isn't what he'd hoped or he doesn't get enough of a mortgage offer from the bank.

But, personally I'd want to be ready to pull the trigger on a house as soon as the funds landed in my account than start late or just let the opportunity slip by

Princess Calla · 17-07-2023 10:37pm

https://www.boards.ie/discussion/comment/120864518#Comment_120864518

I don't think it would be that simple.

Revenue are going to be looking for their cut!

It really depends on if their parents are alive....open to contradiction on this but as far as I can remember if the parents are dead him and his sibling can assume the parents position ie they can jump into threshold A so can inherit circa 300K tax free....however if their parents are dead and the siblings have already inherited under threshold A depending on the amount they've inherited previously they could be taxed 33% on the full proceeds of the house.

However if the parents are alive the siblings are in threshold B so only have circa 32k available tax free so the sister could be looking at a tax bill of 33% of 200K

As he's living in the house he may be eligible to dwelling house relief but the sister won't so her tax bill will need to be cleared fairly promptly after probate is settled....she may not be in a position to do that without selling and he has no savings to cover it either.

Princess Calla · 17-07-2023 10:42pm

https://www.boards.ie/discussion/comment/120864674#Comment_120864674

Oh absolutely be having the conversations and looking around.

Also start underwriting life assurance....many a mortgage has been held up due to life assurance.

Depending on age, lifestyle etc it may not be a quick ordinary rates decision.

Drs reports medicals and all that jazz could be looked for. Something to be very mindful about.

JCN12 · 18-07-2023 8:15am

If they could not afford to save whilst living rent free in the house (in the last 2 years at least), how are they going to manage paying a mortgage?

yourdeadwright · 18-07-2023 9:35am

https://www.boards.ie/discussion/comment/120864520#Comment_120864520

Yes the 250 is what they will have after all deduction's

yourdeadwright · 18-07-2023 9:38am

https://www.boards.ie/discussion/comment/120865256#Comment_120865256

He had been paying off debt from his failed business ,in the clear but only recently hence why saving are basically at zero

Princess Calla · 18-07-2023 9:55am

https://www.boards.ie/discussion/comment/120865509#Comment_120865509

I think 6 months savings is the standard for most lenders. So it will probably be at least 6 months before he can actually get a mortgage.

Also there's potentially a tax liability due to the four years of free rent. Revenue have rules around renting below market rate...the situation might conveniently get brushed under the carpet but it's a bill that could be an unexpected surprise.

kevgaa · 18-07-2023 9:59am

https://www.boards.ie/discussion/comment/120865509#Comment_120865509

The important aspect to get a mortgage is to prove payment capacity over a period of time usually 6 months. That can be achieved by savings rent etc..

If debt is free now and they can save they have 2 choices

1). With agreement from his sister stay for 6 months in the current property and show savings to satisfy a 250k mortgage circa 1500 a month

2). take the 250k and relocate somewhere he can buy a property to meet their needs for the 250k cash.

HazeDoll · 18-07-2023 10:49am

The six-month timeline is optimistic. Unless the OP buys a house and moves into it the day mortgage approval is granted, the sister will need to agree to the house being occupied for a lot longer than six months. I didn't get into my house for seven months after we were sale agreed. No renovations or anything, I walked into it the day I got the key, but it just took that long for the seller to get her act together.

Mine might be an extreme example but it's very unrealistic to expect to be sorted and ready to move in six months.

SteelyDanJalapeno · 18-07-2023 10:58am

If he is currently living rent free and has zero savings, that obviously means he's net zero at the end of the month.

How will he be able to afford any mortgage repayments?

SteelyDanJalapeno · 18-07-2023 10:59am

If he is currently living rent free and has zero savings, that obviously means he's net zero at the end of the month.

How will he be able to afford any mortgage repayments?

yourdeadwright · 18-07-2023 11:09am

https://www.boards.ie/discussion/comment/120865822#Comment_120865822

As said already it's due to paying off debt from his failed business ,in the clear now but only just recently hence why saving are low to this point,

Princess Calla · 18-07-2023 11:15am

https://www.boards.ie/discussion/comment/120865779#Comment_120865779

There's a lot of moving parts.

The absolute simplest solution is buy the sister out...that is totally reliant on mortgage approval.

I know people who had inherited a share in a house and were buying the other person out and they weren't allowed to move in until probate settled....that took two years.....as he's already living there I can't see him being "evicted" but there maybe unexpected conversations.

If they are not buying sister out they will be looking at renting and I'd be budgeting for renting for a year. At minimum of 2k a month you're looking at the guts of 25K to basically flush away.

I think people are saying 6 months before a mortgage lender will give approval, not 6 months until they get keys to new house.

When I bought mine it was a clean sale owner had already moved out, it still took over 3 months from sale agreed to getting the keys. Everything was in on both our sides but there's no rushing the legal teams.

Also the granny's house may not sell immediately either.

While inheriting 250k is absolutely fantastic, at the minute he's in a pickle and very much at the mercy of the sister and granny's estate. I think the next 12 months are going to be very stressful for him especially with 3 young children.