There’s been a notable increase in American parents helping their adult children get into the real estate market by either assisting with down payments or co-signing on the mortgage.
But Jean from Cincinnati went one step further. In an episode of The Ramsey Show, she revealed that she’d decided to help her son (on a temporary basis) by outright buying a home for him.
The original understanding, she told Dave Ramsey on the episode of his show, was that her son would then work toward improving his credit score and adopt the mortgage within five years.
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However, it’s been 16 years and his credit is still bad even while his family has expanded. Meanwhile, Jean has been through a divorce, and her now ex-husband is still on the title for the son’s property.
Ramsey wasn’t pleased with the messy situation. “Your son is a complete parasite,” he told Jean.
Complex, long-term financial arrangements can often complicate relationships. Here's what Ramsey advised Jean to do.
A financial mess
Sixteen years ago, Jean’s son and his wife were raising three children in a one-bedroom apartment. She described them as “bursting at the seams.”
To assist, she and her ex-husband bought a house for them under their name. They hoped the couple could clean up their credit profile and refinance the house under their own names within five years. However, that never happened.
Jean’s son now has four kids and still isn’t considered creditworthy enough to qualify for the mortgage — even though the amount owed, according to Jean, is just under $30,000.
Approximately 16% of Americans have a poor FICO credit score of under 579, according to Experian. As a result, this cohort could face challenges in borrowing money for credit cards, mortgages or personal loans.
The good news is that credit scores can be improved.
Experian claims most credit-building strategies take only a few months (or a handful of years) to implement. Even severe issues, such as bankruptcies, can be cleared within seven to 10 years. That means Jean’s son has had more than enough time to improve his financial situation, but has inexplicably failed to do so.
“Sixteen years, and the credit is still in the tank, tells me he has not been managing money well,” Ramsey Show co-host George Kamel said.
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Jean is now in her mid-60s while her ex-husband is 70 years old. Both struggle with health issues and have never remarried.
“The problem now is getting [the property] out of our names and [my son and daughter-in-law] don't have the credit where they could go get a loan,” she said.
The families are now left with few good options. Jean believes she can pay off the remaining balance on the mortgage with her retirement savings, but she isn’t in contact with her ex-husband so she isn’t sure about his stake. She’s also worried about the tax implications of gifting her son the house.
Fortunately, Ramsey doesn’t think the paperwork will be complicated. The bigger issue, in his view, is relational.
Stop enabling him
If Jean decides to pay off the mortgage balance and transfer her stake to her son, Ramsey recommends using a Unified Estate Tax Credit. This is a combination of a gift tax exclusion and estate tax exemption, according to SmartAsset. Until 2025, the unified credit exemption sits at $11.7 million per person.
However, Ramsey suggested Jean reach out to a professional estate planner or financial advisor to see if this strategy can help her minimize taxes in her situation.
As for the ex-husband’s stake, Ramsey believes it’s easier for everyone to communicate and coordinate an amicable solution, but thinks the son should deal with it if that’s not possible.
“Your son deserves the mess because he is a mess,” Ramsey said. He also described Jean as an enabler. “When you give a drunk a drink, the drunk is very happy with you, but you're not really helping — you're enabling their misbehavior that brings harm to them.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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