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Financing Mum’s Renovation Without Risking The Family Home · That Home Loan Hub

• 0:10
  SPEAKER_00: Okay, if you ever thought what it feels like for Zibunisa to be in a hot chair, this is the episode for you.
• 0:16
  SPEAKER_00: Apparently, I'm in a hot chair today, because as Micah was about to leave, we decided to talk about this topic, and I was like, damn, we've got to record this.
• 0:24
  SPEAKER_00: And he goes, right, you're in a hot chair.
• 0:26
  SPEAKER_00: I'm gonna ask you questions.
• 0:27
  SPEAKER_00: So hello, Micah.
• 0:28
  SPEAKER_00: Hi, g'day.
• 0:29
  SPEAKER_01: Nice to be back.
• 0:30
  SPEAKER_00: Nice to be back.
• 0:31
  SPEAKER_00: All right, you had an interesting situation recently.
• 0:34
  SPEAKER_00: Tell me more.
• 0:35
  SPEAKER_01: So, so some friends actually came to me and they're in a situation where my friend's mother lost her partner some time ago, and she finds herself living in a large house by herself.
• 0:46
  SPEAKER_01: And so they'd been talking about her shifting up to Wellington to live with her daughter and her daughter's partner.
• 0:53
  SPEAKER_01: And so they were looking at some houses and some houses needed, they were thinking of doing work to the house, and then it opened up all these questions around well, hang on a sec, how might we finance the work?
• 1:06
  SPEAKER_01: How would it work for a loan?
• 1:08
  SPEAKER_01: Would the daughter and her partner be financing the loan for the work to the house potentially?
• 1:14
  SPEAKER_01: How does it impact on the title of the property?
• 1:16
  SPEAKER_01: All these complex things.
• 1:17
  SPEAKER_01: And I was like, I don't know, talk to Zeboniso.
• 1:19
  SPEAKER_00: So So you are talking to me now.
• 1:21
  SPEAKER_01: So I'm literally talking to you now.
• 1:23
  SPEAKER_00: Okay, so basically the rule of thumb for the banks is always who is the owner of the land, of the title, where the house is.
• 1:32
  SPEAKER_00: And in your situation, let's say if it's your friend that owns that house, piece of land that they own, it will be her and her partner that will have to go on a mortgage application.
• 1:43
  SPEAKER_00: Unless they pay for the subdivision, subdivide first, give mom a piece of land to build on.
• 1:49
  SPEAKER_00: Until then, they're responsible for the whole thing.
• 1:52
  SPEAKER_00: So if they want to do anything to the house, to their house, it's their responsibility.
• 1:56
  SPEAKER_00: They have to borrow the money.
• 1:57
  SPEAKER_00: They have to make sure they can pay back that money.
• 1:59
  SPEAKER_00: If it's mum's house that she needs to do with whatever, obviously that's her house.
• 2:04
  SPEAKER_00: Then she needs to do, you know, she needs to borrow the money if that's what she wants to do.
• 2:08
  SPEAKER_00: However, let's say if mom doesn't work, doesn't have the income, then sometimes I see kids borrowing money.
• 2:13
  SPEAKER_01: Yeah, so that would be the situation where the mum has the asset, but not the power, the earning power necessarily to pay for changes or whatever, new bathrooms or whatever to the house.
• 2:24
  SPEAKER_00: Yeah, so then let's say if the daughter owns a property, she will have to borrow money against her property to gift it to mum to renovate mum's house.
• 2:34
  SPEAKER_00: That's option one.
• 2:35
  SPEAKER_00: Option two, sometimes parents sell the house to their children below marketplace, market price, let's say, because it needs certain renovations, whatever.
• 2:44
  SPEAKER_00: And what it means is that the the clients will end up with a property that have that has a lot of equity, and we can borrow against that equity.
• 2:53
  SPEAKER_00: But then again, that falls back on the child.
• 2:56
  SPEAKER_00: Mum now doesn't have a house.
• 2:58
  SPEAKER_00: Yeah, so that's complex.
• 2:59
  SPEAKER_00: That's complex.
• 3:00
  SPEAKER_00: From one hand, you sort of the way a few of my clients have seen it is they go, Well, at least I want my kid to enjoy the inheritance now while I'm still alive.
• 3:09
  SPEAKER_00: I don't want them to enjoy it when I'm dead, you know, and struggle.
• 3:14
  SPEAKER_00: So at least they can give it to them now.
• 3:16
  SPEAKER_00: They can borrow the money against that house, help out the mum's renovation, sell the house, let mom move somewhere else.
• 3:23
  SPEAKER_01: What if they're all living together in one house?
• 3:25
  SPEAKER_00: Again, depends who owns the house.
• 3:27
  SPEAKER_00: Yeah.
• 3:28
  SPEAKER_01: So would it work to have all parties on the title?
• 3:30
  SPEAKER_01: And would that enable would that be a simple way of doing it?
• 3:33
  SPEAKER_01: Having uh in terms of uh having, yeah, both perhaps daughter and mother on the title and then uh being able to work alone that way.
• 3:42
  SPEAKER_00: So that means m the daughter has to buy into the house, and you know, the lawyers might just change the title, but again, that needs to be some sort of agreement down between the mother selling it to the mother and daughter.
• 3:56
  SPEAKER_00: That's how it usually works.
• 3:58
  SPEAKER_00: Because you have to set when you you can't just change the title, you have to set what was the transaction.
• 4:05
  SPEAKER_00: Was it transacted for the market price or below market price or whatever?
• 4:09
  SPEAKER_00: You can't just sell it for a dollar because otherwise it affects the area and the values of the properties in the area.
• 4:15
  SPEAKER_00: So there's a lot more complexities for that, and again, you have to be careful because, like let's say the daughter goes on a title with the mother, but then her relationship breaks down.
• 4:26
  SPEAKER_00: Now, suddenly this man can actually legally take away half of that house.
• 4:31
  SPEAKER_01: So there's there are other things to consider around the whole relationship and protection of the SE, for example.
• 4:38
  SPEAKER_00: Yeah, because the moment the daughter goes on the title with mom on that house, it becomes relationship property.
• 4:44
  SPEAKER_00: So then you know that exposes her and her mother, because if that's mother's house and suddenly she's exposed to give away half of it, that's not gonna be cool.
• 4:53
  SPEAKER_00: Yeah, so so yeah, so there's a lot involved, there's a lot of moving parts, there's definitely needs to be legal advice, there's definitely needs to be some sort of accounting advice, maybe, you know, what the implications are because if they're just going to renovate and sell, there might be some taxes to pay if that's not gonna be the house where they reside permanently, all sorts of things to consider.
• 5:14
  SPEAKER_00: But this is where the help of professionals come into play because we can look at it from all sorts of different angles and show them what they are exposing themselves to.
• 5:29
  SPEAKER_00: Implications, yeah, correct, correct.
• 5:31
  SPEAKER_01: But it does sort of lean into the idea of like getting the yeah, things like the title and the ownership structure really right for a situation, because every situation is different, obviously.
• 5:41
  SPEAKER_00: So yeah, correct.
• 5:42
  SPEAKER_00: Because when the bank does the mortgage against the property, it has to be against the property owners.
• 5:48
  SPEAKER_00: So if mom is not working but the daughter is, and if the daughter is suddenly coming onto the picture, she will be seen as a borrower of convenience, and the banks don't like that.
• 5:59
  SPEAKER_00: Because that, you know, opens up a whole other can of worms is that why is the daughter doing it?
• 6:05
  SPEAKER_00: So um, yeah, so we really need to be careful in those scenarios and make sure that everyone's protected and mom is not left without an asset altogether, or if there are legal documents drawn behind the scenes, so if mom is gifting her the certain equity in the house, it's because it's part of her early inheritance.
• 6:22
  SPEAKER_00: Yeah, whatever.
• 6:23
  SPEAKER_00: Because I don't know if there are any other siblings involved as well.
• 6:25
  SPEAKER_01: Yeah, how does that all work?
• 6:26
  SPEAKER_00: Yeah, correct, because other siblings might then get quiet, you know.
• 6:30
  SPEAKER_01: Yeah, so it becomes complex from that point of view.
• 6:32
  SPEAKER_00: And yeah, yeah, because suddenly, you know, one child is favored more than the other kids, and then they go, Well, we want part of that inheritance too, you know.
• 6:40
  SPEAKER_00: So, yeah, so you really gotta be careful when it comes to that stage.
• 6:45
  SPEAKER_00: So I would suggest getting proper legal advice and looking at a situation from the financial point of view, who can afford what.
• 6:53
  SPEAKER_01: And I guess being really transparent with the lawyer as well about yeah, just your general intentions so they can best advise you on destruction.
• 7:01
  SPEAKER_00: Correct.
• 7:01
  SPEAKER_00: But I don't know if you know, there's actually a product that we also help with is reverse mortgages.
• 7:07
  SPEAKER_00: So, for instance, in mom's case, if she still owns the house and there's no mortgage on it, she can actually borrow a little bit of money to renovate without being able to service the money.
• 7:17
  SPEAKER_00: She doesn't pay anything on it until it sells.
• 7:20
  SPEAKER_00: Oh, so it's called a reverse mortgage.
• 7:23
  SPEAKER_00: Yes.
• 7:23
  SPEAKER_00: So there's actually potential for mom just to do it on her own terms and deal with that in her own name.
• 7:30
  SPEAKER_00: And again, we can help with that as well.
• 7:32
  SPEAKER_00: So um, yeah, so reverse mortgages.
• 7:34
  SPEAKER_01: So essentially it's a deferred payment on the work that you might want to do.
• 7:38
  SPEAKER_01: Correct.
• 7:39
  SPEAKER_00: A lot of um our older clients they like that option because they're asset rich but cash poor.
• 7:44
  SPEAKER_00: So what they do is they borrow money, let's say 50k or 100k, whatever they need to renovate the house.
• 7:49
  SPEAKER_00: Once they sell the house, the bank then takes back that 100k that they've lent them plus fees plus interest.
• 7:56
  SPEAKER_00: And that's it.
• 7:57
  SPEAKER_00: The client just walks away with much better cash position.
• 8:02
  SPEAKER_00: Yeah.
• 8:02
  SPEAKER_00: And they don't feel any poorer for that.
• 8:05
  SPEAKER_00: So, um, so in your friend situation, maybe that could be that could be an option.
• 8:09
  SPEAKER_00: That could be an option without getting too involved.
• 8:12
  SPEAKER_00: Absolutely, yeah.
• 8:13
  SPEAKER_00: This is not a financial advice.
• 8:14
  SPEAKER_00: Uh legal.
• 8:16
  SPEAKER_00: Quick disclaimer.
• 8:17
  SPEAKER_00: Yeah, but um, I think this is a really interesting case for sure.
• 8:21
  SPEAKER_01: Absolutely.
• 8:22
  SPEAKER_00: Awesome.
• 8:22
  SPEAKER_01: Any other questions, Micah?
• 8:24
  SPEAKER_01: Uh not off the cuff, but we'll do another podcast when one hits me.
• 8:28
  SPEAKER_01: How about that?
• 8:28
  SPEAKER_00: I love it.
• 8:29
  SPEAKER_00: Thank you so much for coming in.
• 8:30
  SPEAKER_01: Brilliant, thank you.