Posted by: Paul | 2015/07/16 04:32
My mother bought her house around 9 or 10 years ago for just under R900 000. The house is now valued at around R1.6 million and she owes about R800 000 on her bond. They are thinking of relocating and whish to purchase another house, but do not want to sell the current house and loose out on it's great financial growth potential. However with the current bond on their name they do not have enough income to apply for the second bond. She has approached me and asked if I would like to buy into the house effectively obtaining a bond of R800 000, to settle their bond and freeing them up to acquire the new bond. We would then be co-owners of the house 50/50 and I would be repaying my R800 000 bond. My question is 1 Can we do it this way? Would a bank or financial institution grant me a loan under these circumstances? (Am I also right in assuming no transfer costs needs to be paid, my name will just be added as a co-owner on the deed?) 2) Is their simply a way of taking over the bond from my mother that the outstanding amount reverts to me? The house can be transferred to me aswell we will still enter into a contract of being 50/50 owners. 3) Is it possible to set up a trust and transfer the house to it. Once again would I be able to apply for a loan and then take over the R800 000 outstanding on the bond from my mother? If none of these options are viable: 4) If I enter into a long term rental contract with my mother and not buy into the house, but basically cover their bond repayments. Will they be granted a loan for the second house with this added income? Thank you in advance
Posted by: Carol Reynolds | 2015/07/20 18:18
Hi Paul. Unfortunately, as soon as there is a transfer of a portion of a property or a change in ownership this will attract transfer costs. This means that essentially, your mom will have to sell the house to you. You can then either buy it in your own name entirely or put it into both of your names or put it into a trust. If it goes into both of your names, then your mom will still be liable for 50% of the bond, which will impact on her ability to borrow money for her second purchase. The banks insist on the owner and bond holder being the same parties, thus if both of your names appear on the title deed, the bank will register the bond in your joint names. The only other alternative is for you to buy the new property - if this is in your name, then at least you can be a party to the new property. If you tamper with the existing property it will attract costs. The best way to reduce costs is for you to simply purchase the new property - you can then agree amongst yourselves that you will stay on as a tenant in your mom's existing house; and she can sign a lease with you to be a tenant in your new house. Banks are conservative when taking leases into account for affordability - at best, they will look at 50% of the lease value, and some won't even consider future income like rental income.
Otherwise, if your mom sells her house to you for R1 million, you will pay a minimum of R25 000 in costs. You need to weigh up the costs and then determine the best way forward.
I wouldn't recommend a trust for your primary residence, as capital gains tax is heavy on a trust. Whereas, if you own one property in your name and your mom owns one property in her name, these will both be primary residences and there will be a R2 million tax exemption for capital gains when you come to sell.
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