Unique Situation - Mortgage Help

[Anonymous]

Hi everyone, 

First time poster here, but I've been a long-time reader of the boards! Any help or insight people could provide would be greatly appreciated! 

I have a unique situation that I'm trying to figure out the best course of action for. I've been renting a house from my brother for about 13 years. He's recently had some financial issues after dealing with massive medical debt post open-heart surgery and my niece being diagnosed with epilepsy. They decided bankruptcy was the only viable course after doing all they could for many years to manage the debt. Both his current home and the house I rent are going to be going into foreclosure procedings withing the next 4-6 months. 

He has offered to sell me the house we live in for what he owes on it - a mere $50,000. We had talked about this in the past and it was on my radar already. The house needs some work (new roof, new deck, etc) but my fiance and I like the house, the area and are willing to purchase it for the great deal he's offering if we can figure out how to do so. We're looking at it as a first step to owning property - then reselling after a few updates for a profit, or keeping it as a rental property.

I've been on the path to rebuilding my credit over the past few years, and have succesfully increased my score from the high 400s to between 616 - 675 lately - depending on the credit agency and my cc utilization that month. I have a few negatives still on my credit - from old medical bills. 

This would be my first home purchased and I'm trying to figure out where to start. Am I able to secure a mortgage for that amount with my current scores? What programs would I possibly qualify for as a first time home buyer? Would a local credit union be the best place to start looking for financing? I'm really going into this situation dark, as I have no prior experience with mortgages/home buying. So any help will be great! 

I've been at my job for 12 years and make about $52K a year. We'd just be using my information to secure the mortgage, as my fiance is not in the best place with his credit profile and just graduated from college with substantial student loan debt. Any help, ideas or insight people can provide would be great!

Thanks in advance for reading!

Mary

[JVille]

Go down and speak with a Loan Officer at the CU. Take 2 months paystubs and tax records (W2’s) for last 2 yrs. Are you a Veteran? You need some type of 1st Time program which the CU May or may not offer. But getting info about you particular situation is free so do it.

As a side note if the Bankruptcy Courts believe he is selling an asset for significantly less than its worth there will be a potential of a “Claw Back” of the asset. You may need to contact an attorney for legal advise. Selling assets in contemplation of BK is a no no. Good Luck and please report back about what you learn as it will educate others about these kinds of issues.

[Anonymous]

Thanks for your response, JVille! 

I am not a veteran, so I would not qualify for those particular programs. 

My brother is working with an attorney who is aware of the situation, so we should be OK. The homes were not included in the bankruptcy (I believe it was a chapter 13), but from what I understand from what my brother told me, the banks he held his mortgages with had some stipulations on late payments after the bankruptcy was processed. With the bankruptcy repayments my brother was cutting it close every month financially and he made a few late mortgage payments that were outside of the grace period, which allowed the banks to start the process of foreclosing. The house isn't worth terribly much more than what he's offering to sell it to me for as well - especially with the repairs that need to be done. 

I have contacted someone at a local credit union, so hopefully I will know more on that front as well! 

[JVille]

Depending on the Actual value of this home the repairs needed (roof & deck, plus misc repairs) and closing costs can be built into the sales price so that it “appears” the seller is including these costs. The house needs to appraise high enough to include those items. The the Lender will require those funds to be “held back” in escrow to pay for the improvements immediately after closing (purchasing). In other words you don’t get the money yourself but you have arranged with a contractors (roofer) to make the repairs as soon as the money is available. To make these kinds of improvements the house must qualify in value and you need to get cost Estimates and decide what Licensed Professionals you want to hire to do the work. Good luck and go speak with a lender.

[kc0039]

Why not do a continuance for deed? Have a Quit Claim Deed ready so that the title company will issue the title under the correct name.

[Anonymous]

Apologies for my ignorance - this is all Greek to me! I tried to research what you meant by continuance for deed, but didn't come up with a clear answer. Can you explain that to me a bit? Thanks!

[NC_Mtg_Loaner]

Another option could be a renovation loan where the bank lends you enough money to pay the seller and your contractors' efforts in renovating the property.   That way you can borrow the money now and fix the property up the way you want it to be and have those costs included in your new loan.

[kc0039]

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@Anonymous wrote:

Apologies for my ignorance - this is all Greek to me! I tried to research what you meant by continuance for deed, but didn't come up with a clear answer. Can you explain that to me a bit? Thanks!

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You don't buy the house, you refinance it under your name and take over with a new loan. Definitely cheaper with closing costs. Just pay more for recording fees. It's called continuity of obligation (Fannie Mae took away the 12 months of the new borrower paying for the mortgage) and it's only available with Fannie Mae (conventional loan). 

1. You refinance the outstanding balance then pay the closing costs OR refinance all the costs into the loan.
2. Make a Quit Claim Deed (QCD) where the brother is quit claiming title to you and your spouse
3. Get the loan officer to send the QCD to the title company so that title will be under you and your spouse's name
4. The house must be appraised. As long as the house passes appraisal, it should be fine
5. Get underwritten, get approved, then close. 

You MUST qualify for this loan. If you can't qualify for this loan due to the appraisal, any other lien on the property that you didn't know of, or anything for that matter, you are out an appraisal fee. Contact your local lender to see if they can do this. 

[StartingOver10]

I  disagree with the "continuance of deed" suggestion.  You are going through the entire purchase (almost) and the most hassel is getting the financing which you need to do anyway, yet you don't end up with a warranty deed. Not good.  

Just do the traditional puchase with an FHA or USDA type mortgage. It will be the exact same process as far as a loan application and processing goes and you do end up with a warranty deed. There is no benefit to you, as the buyer, to do the 'continuance of deed' IMO. 

[JVille]

Agree with this advice particularly as the current owner in getting ready to file BK. This sale needs to be clean in order that the sale of a Rental Asset is not “Clawed Back” by the BK proceedings.