cancel
Showing results for 
Search instead for 
Did you mean: 
js1_
Level 3

If someone refinances their primary residence, may they still gift it to their adult son 2-3 months later without any issue from the lender?

 

This is more out of an abundance of caution.

 

My elderly father, who isn’t doing too well healthwise, is going to refinance his house soon (30yr fixed conventional - house is in California), and then gift it to me.

 

I understand that lenders stand to lose money if someone refinances a house with them, and then refinances again with someone else within 4-6 months, and that they sometimes even write temporary, perhaps 6 month, prepay penalties into the loan to guard against this.

 

What we’re not clear on is, if he :
Sept 2020: Refinances the house
Dec 2020: Transfers/gifts the entire house to me. House is primary residence for both of us. I will not refinance the house or assume the loan for at least several years. (We both decided the home may have to be gifted before the end of 2020, instead of passing through inheritance, for reasons beyond the scope of these questions.)

 

... would there usually be anything in a standard refi contract that could complicate the gifting of the house?

 

This probably isn’t relevant, but the house is in his revocable living trust - he is the trustee, I am the beneficiary. We are aware of the tax implications, such as that there is no step-up in cost basis with this gift.

 

It is my understanding that:
-The Garn-St. Germain act permits parent to child gifts/transfers of a home without the loan being called.
-The home ownership and the financing are two separate things, and that the loan can remain in my father’s name.

 

Our concern is that when a refi lender tries to sell a loan, Fannie May/Freddie Mac might check for a change in ownership of the house since the refi closed, and possibly have an issue if it changed. And if this is true, that refi lenders might write something into their contracts (possibly in fine print somewhere) to discourage the transfer/gift of a home before they are able to sell the loan to Fannie May/Freddie Mac.

 

As mentioned earlier, for the case of someone refinancing again within 4-6 months, they actually do sometimes do this. But do they do this for only an ownership change?

 


Our questions are:

#1 Would the home owner’s insurance company care about any of this? Are they involved in any way which could complicate/prevent this gift?

 

#2 Most importantly, and the main question: Do lenders sometimes write anything into a refi loan, in California, that the house can not change ownership through gifting for a certain amount of time without penalties? (Again, I understand there may be prepay penalties if the home is refied within 6 months, I am referring only to a change in ownership.)

 

Our guess is the gift will be fine and without any issue - I’ll take ownership of the house, the loan will remain in his name, and there will be no penalties/issues from the refi lender for the gifting of the house 2-3 months after the refi. We just wanted to verify this before we look further into refinancing.

 

Thank you.

 

1 Best answer

Accepted Solutions
tagteam
Level 15

If someone refinances their primary residence, may they still gift it to their adult son 2-3 months later without any issue from the lender?

You really should seek guidance and counsel, in-person, with a local financial and/or legal advisor for this scenario.

 

However, the act to which you referred, I believe, prohibits the due-on-sale clause from being exercised by a lender when the transfer is into an inter vivos trust or to a spouse or child of the owner who then becomes an owner of the property (note the words "an owner" would imply that the original borrower is still on title). Again, you should check with the lender on this issue.

 

Similarly, you should check with the insurance carrier regarding the transfer. Clearly, casualty and liability insurance is something you do not want to jeopardize or leave to chance.

View solution in original post

3 Replies
tagteam
Level 15

If someone refinances their primary residence, may they still gift it to their adult son 2-3 months later without any issue from the lender?

You really should seek guidance and counsel, in-person, with a local financial and/or legal advisor for this scenario.

 

However, the act to which you referred, I believe, prohibits the due-on-sale clause from being exercised by a lender when the transfer is into an inter vivos trust or to a spouse or child of the owner who then becomes an owner of the property (note the words "an owner" would imply that the original borrower is still on title). Again, you should check with the lender on this issue.

 

Similarly, you should check with the insurance carrier regarding the transfer. Clearly, casualty and liability insurance is something you do not want to jeopardize or leave to chance.

View solution in original post

xmasbaby0
Level 15

If someone refinances their primary residence, may they still gift it to their adult son 2-3 months later without any issue from the lender?

I will add that you should also consult an elder care attorney about the wisdom of gifting the house to you.  If your father --who you say is in poor health-- ends up needing Medicaid and going into a nursing home at some point, Medicaid has a five year clawback on "gifts" given by your father.  It would be a good idea to do some serious estate planning.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
Opus 17
Level 15

If someone refinances their primary residence, may they still gift it to their adult son 2-3 months later without any issue from the lender?


@xmasbaby0 wrote:

I will add that you should also consult an elder care attorney about the wisdom of gifting the house to you.  If your father --who you say is in poor health-- ends up needing Medicaid and going into a nursing home at some point, Medicaid has a five year clawback on "gifts" given by your father.  It would be a good idea to do some serious estate planning.


This is critical.  See an Elder Law specialist for your estate planning needs.  When a parent "gifts" a house to a child, there can be several very bad outcomes, regardless of whether you can make the gift without screwing up your mortgage.  (You could be required to pay up to half or more of the value of the gift back to your father to pay for his medical care, which might force you to sell the house or refinance.)

 

Besides losing the house to Medicaid, the child can be hit with capital gains tax when selling the house, that can be avoided if proper steps are taken in advance.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Privacy Settings
v