Adding Your Adult Son To Your Mortgage: What You Need To Know

Adding an adult child to your mortgage and deed is a common process, but it is important to carefully consider the risks and benefits before proceeding. Firstly, it is advisable to consult a solicitor or estate trust lawyer, as there may be implications that you have not considered. If you already have a mortgage on your property, you will need to obtain authorization from your lender to add a second party to your deed, and they will be subject to the same standard checks as a new applicant. This will make them a legal co-owner, meaning they will have to consent to any sale of the home or decisions regarding the mortgage. Additionally, if your child gets into debt, their creditors can force a property sale to collect payment.

How do I add my adult son onto my mortgage?

Adding an adult son to a mortgage: the process

Adding an adult son to a mortgage is a common process, but it's important to carefully consider the reasons for doing so and the potential risks involved.

Firstly, it's crucial to understand that adding your son to your mortgage will likely require adding him to the deed as well. This means that he will become a legal co-owner of the house, with an equal right to the entire property. As a result, he will need to consent to any decisions regarding the property, such as selling or refinancing. Additionally, if your son has debts or tax problems, his creditors could place a lien on the house and force a sale.

To add your son to your mortgage, you will need to contact your lender and apply to have his name added. He will be subject to the same standard checks as a new mortgage applicant, including income and affordability assessments. It's important to note that adding someone to a mortgage is not a formality, and lenders will need to ensure that the mortgage is affordable for the new homeowner. You may also incur additional costs, such as stamp duty or legal fees.

Before proceeding, it is highly advisable to consult a solicitor or estate trust lawyer to understand the legal and financial implications of adding your son to your mortgage and deed. They can guide you through the process and ensure that all necessary steps are taken, such as obtaining authorization from your mortgage lender and making the necessary legal changes to the property deeds.

Overall, while adding an adult son to a mortgage can be a beneficial decision for some families, it is essential to carefully weigh the potential risks and consider all available options before making any decisions.

The risks of adding an adult child to a deed

If you're considering adding your adult son to the deed of your mortgaged home, it's important to be aware of the potential risks involved. Here are some key points to keep in mind:

Legal Co-ownership

Adding your adult son to the deed of your home means they become a legal co-owner of the house. This has significant implications for any future decisions regarding the property. Both of you must consent to any sale of the home, taking out a mortgage, or home equity line. Their consent will also be necessary if you plan to refinance the property in the future.

Financial Risks

Your son's financial situation could expose your home to risk. If your son faces financial difficulties or declares bankruptcy, your house may be sold to cover their debts. Their creditors could place a lien on the house, and a tax lien could be filed if your son encounters tax problems. Even if your son is generally responsible with money, unexpected events like lawsuits or business failures could impact your home.

Inheritance and Family Dynamics

Adding your son to the deed can have unintended consequences for inheritance and family relationships. If your son passes away before you, you may have to pay inheritance tax on the portion of the home gifted to him. Depending on the wording of the deed, his ownership interest could pass to his heirs, potentially resulting in you owning the house jointly with your in-laws. If your son is married and goes through a divorce, his spouse could claim the house as a marital asset. If you have multiple children, adding only one to the deed could lead to feelings of unfairness and complicate property division upon your death.

Tax Implications

Adding your son to the deed is considered a completed gift, and the value of this gift should be reported on a gift tax return if it exceeds the single-year maximum for gifts that don't need to be reported. If your son decides to sell the property in the future, he may face higher capital gains taxes based on the original purchase price rather than a stepped-up basis.

Alternative Options

Before adding your adult son to the deed, it's worth exploring alternative options to achieve your goals. You could devise the property through a will, ensuring your son receives the property upon your death without being an owner during your lifetime. Other options include placing the property in a revocable or irrevocable trust, which can help you retain control, avoid probate, and protect the property from your son's creditors.

It's important to carefully consider your specific circumstances and seek legal advice before making any decisions. Each situation is unique, and understanding the potential risks and benefits will help you make an informed choice.

The benefits of adding an adult child to a deed

While adding an adult child to a deed has its benefits, it is a complex decision that depends on the motives and circumstances of the parent(s). Here are some advantages to consider:

Avoidance of Inheritance Tax and Probate

Adding an adult child to a deed can help avoid inheritance tax and probate. When a parent passes away, the child automatically becomes the owner of the property, bypassing the lengthy and costly probate process. This ensures a smooth transition of ownership and can save the family time and money.

Preservation of Medicaid Benefits

In certain states, creating a Life Estate deed can help preserve Medicaid benefits for the parents. By establishing this type of deed, parents can avoid a lien being placed on the house by Medicaid, ensuring that they can continue to receive the necessary medical assistance without worrying about losing their home.

Property Transfer and Ownership

Adding an adult child to a deed is a way to ensure that the child becomes a property owner and that the house will be passed down to them. This can be especially important if the parent(s) want to keep the property in the family and have peace of mind that their child will have a stable home.

Capital Gains Taxes

When an adult child is added to a deed, the original cost basis is transferred to them. If they choose to sell the property later, they may benefit from reduced capital gains taxes compared to inheriting the property after the parent's death, where the current market value would be used for tax calculations.

It is important to note that while these benefits exist, there are also significant risks and complications associated with adding an adult child to a deed, including tax implications, exposure to creditors, and family dynamics. Seeking legal advice from a qualified estate planning attorney is essential before making any decisions.

What to do if you're tied into a fixed-term mortgage

If you are tied into a fixed-term mortgage and want to add your adult son to it, you may want to consider the following options:

Remortgaging

Firstly, it is important to note that remortgaging to add your son to the policy may not be the best option if you are tied to a fixed-term mortgage, as you are likely to face early repayment charges. However, if the savings you make by remortgaging are greater than the fees you will have to pay to leave your existing deal, it may still be worth considering. You can also arrange a remortgage up to 6 months in advance with most lenders without paying any fees, allowing you to fix a rate that is available now and transfer to it when your current deal ends.

Adding your son to your existing policy

You could add your son to your existing policy without remortgaging. To do this, you will need to contact your lender and apply to have your son added to the mortgage. He will be subject to the same standard checks as a new applicant, including income and affordability, and a credit check. If your son has a poor credit score, he may not meet the lender's criteria, and they are under no obligation to add him to the policy.

Waiting until the fixed term expires

If you decide that remortgaging now is not the best option, you could wait until your fixed-term expires and then look at remortgaging to a joint mortgage with your son.

Porting your mortgage

You could also consider contacting your lender to see if you can port your current mortgage deal to a new property. The mortgage terms will not change, but the loan will be secured against the new property. However, not all lenders allow for porting, and you will need to have the new property appraised to ensure that the lender can recoup its losses if you default on the mortgage.

Redeeming your mortgage

Another option is to redeem your mortgage by paying off the loan. This will end the mortgage deal early and will likely incur an early redemption penalty. However, it is worth considering whether a new mortgage deal could reduce your monthly payments, making the penalty worthwhile.

It is important to carefully consider the pros and cons of each option and, if necessary, seek advice from a mortgage professional or solicitor before making any decisions.

How to transfer a property deed

If you want to add your adult son to your mortgage, you will need to contact your lender to apply to have his name added. This will involve legal changes to the property deeds. Your son will be subject to the same standard checks as a new mortgage applicant, including income and affordability.

If you are tied into a fixed-term mortgage, remortgaging may not be the best option as you may be subject to early repayment charges. In this case, you could add your son to your existing policy or wait until the fixed term expires and then look at remortgaging to a joint mortgage.

It is important to be aware of the potential tax consequences of transferring a property deed to your son. If you transfer the deed while you are still alive, your cost basis becomes your son's basis. If your son sells the home, he will have to pay capital gains taxes on the difference between the sale price and the cost basis. If your son inherits the property upon your death, he will receive the stepped-up basis, where the value of the property at the time of your death becomes his basis. In this case, if he sells the home, he will not be responsible for capital gains tax.

There are several ways to transfer ownership of a property to your son. One option is to sell or gift the property to him while you are still alive. This can be done through a Qualified Personal Resident Trust (QPRT), which transfers ownership of the home to a trust. Another option is to sign a Transfer-on-Death deed, which is available in 25 states and the District of Columbia. This allows you to avoid probate on the property and can be changed at any time before your death. Alternatively, you can leave the property to your son in your will.

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