If you are curious about how to get a mortgage for your parents' house, then you should know that it's a lot more straightforward than it sounds at first. In fact, many lenders would regard this situation as less risky than offering mortgages to buyers who have no prior affiliation with the sellers of a home. The home has more value as collateral because of your parents' equity, which to a lender is tantamount to your equity, since you have the legal ability to inherit your parents' property.
Even contemplating how to get a mortgage for your parents' house is doing a good deed; you may save them from resorting to draining their net worth by succumbing to pitches for reverse mortgages or annuities. Just like the name suggests, a reverse mortgage reduces home equity by taking money away from the amount of an outstanding mortgage balance. Annuities can have that same effect upon retirement savings, turning it into a pool of cash to be disbursed in monthly installments with some interest added on. Buying your parents' home from them effectively keeps the money within the family, and can streamline estate planning.
Real estate is often the most valuable thing that most people own, but it doesn't make for the most efficient inheritance even when you are an only child and sole heir. Naturally, two or more siblings inheriting a home together will be faced with some decisions to make upon the death of their parents such as whether to keep the home or sell the property, how to split the proceeds and pay capital gains taxes. An only child inheriting a home has to go through a similar process, only the question might be a matter of whether to move into the parents' house or put it up for sale.
Buying your parents' house gives them the cash they might need to fund their retirement, and if they pass away before spending all of the money these funds can be much simpler inheritances than real estate. Taking ownership of your parents' home before they've passed away does give you more of a guarantee that the home will be yours since it keeps the property from being challenged in an inheritance-related lawsuit. Some wills and inheritances become disputes that go through a type of family court known as probate. Usually only the largest estates end up in probate court, and some say that about 1% of inheritances and wills have legal challenges.
The actual process of applying for a mortgage for your parents' house isn't much different from getting a loan on any other property. Somewhere on the application for the loan, write down the fact that the home belongs to your folks. It is possible that a mortgage broker will ask you to explain the transaction, but that is simply to clarify facts that will work in your favor. You may qualify for a good interest rate that might be a better deal than what you might get if you were buying someone else's home. Interest rates are based on riskiness, and buying a home from one's parents is likely to be perceived as less risky. Less risk is less expensive for a lender, and that savings will be passed on to you as the borrower.
If you were thinking of getting a mortgage on behalf of your parents, so that they could move into a new home while you handle the paperwork for them, that's a different scenario. One might consider doing this when parents are somehow incapacitated and you have power of attorney, meaning the legal right to handle the financial affairs of, and make life decisions for, a relative or loved one when that individual is physically or mentally incapable of doing so. This requires you to submit proof of the power of attorney along with the loan application documents. Such an application may not carry more risk from the viewpoint of a prospective lender, but neither would the application seem less risky than the average borrowing request either. Other details contained in the mortgage application would dictate the amount of risk for the lender and the resulting interest rate pricing offered if the loan is approved.
Knowing How to Get a Mortgage for Your Parents' House
In most cases, getting a mortgage for your parents' house is a win-win situation. Your parents get the cash they need for their retirement, the real estate is protected from inheritance challenges, the lender gets a less risky borrower, and you get a better deal on a mortgage.