topic Re: unusual situation in Mortgage Loans

unusual situation

mt2va — Tue, 11 Aug 2009 18:53:27 GMT

I have a somewhat unusual mortgage situation and hoped someone might give me some ideas on what my options may be.

November 1996 my husband & I “bought” our house. However, the loan was taken out solely in my parents’ name. (many reasons but it was the only way we could do it at the time due to our credit, my parents had way better scores, we were both at new jobs, etc)

For all intents and purposes this is our house. We pay the house note every single month directly to the bank that it is financed with. We pay the taxes and homeowner’s insurance. Previously there was no hurry to change things as my parents had the benefit of taking the deductions for the house from their taxes and we would not have been able to. (standard deduction for us is more than itemized)

Okay so fast forward to now. I need to find someway to get this loan into my name. My parents are now 70 & 78 and my mom is insisting we need to think about the future.

I have some credit issues. I’ve been working on my credit since January and am making progress. I’m somewhere in the low 600s with TU & EX (estimated with EX based on FAKO scores) & mid 600s with EQ. Most of my bad stuff is scheduled to drop off all 3 CRA in 2011-2012. All of my “recent” credit is in excellent standing with no lates whatsoever. Other minor drawbacks are a number of new accounts and inquiries as a result as well as higher utilization on CC but that will be resolved in the next couple months.

Here are the stats on the house. In 1996 we paid $45,000 for it. ($50,000 less $5,000 downpayment) The last appraisal has it around $85,000 I think. We still owe about $36,000 on the 30 year ARM. (currently at 6% interest) We have 17 years left on the loan.

Sorry for the book but there are a lot of variables here. One of the problems seems to be the amount we want to finance is less than the minimum that banks will finance. I spoke to the bank that holds the current note and their current minimum to finance is $55,000. I haven’t actually discussed the amount that my parents want for the house, but I really don’t expect for them to ask for much more than the amount due to pay the loan off with the bank.

Are there other options available to us? We’ve already been told we can’t take the homebuyer’s (first time) credit because this is from a relative. A personal loan even if we could secure it against the house as collateral would be I’m sure a much higher interest rate. The loan officer I spoke to at the bank today said something about going to a lawyer and having the deed put in our name but that still leaves the loan in my parent’s name so that doesn’t completely resolve the issue because even if they are no longer considered the owner of the house they would still be considered legally responsible for paying the debt.

Re: unusual situation

SonorityGenius — Tue, 11 Aug 2009 19:09:26 GMT

You can qualify for a FHA loan; 3.5% downpayment; list the home for $55k and buy it off your parents.. they can consider doing a gift of equity but I think buying outright from them would be your best bet.

Re: unusual situation

mt2va — Tue, 11 Aug 2009 19:15:16 GMT

@SonorityGenius wrote:
You can qualify for a FHA loan; 3.5% downpayment; list the home for $55k and buy it off your parents.. they can consider doing a gift of equity but I think buying outright from them would be your best bet.

Thanks for your reply. I looked up the FHA loan guidelines and it appears that we would qualify. I'm not sure I understand what you mean about buying from them outright. I didn't want to do the loan for $55,000 because that really seems like we are starting all over again for another 30 years. I was also hoping when we did the loan to do it for 15 years which would knock 2 more years off the loan. We could afford that.

Re: unusual situation

Anonymous — Tue, 11 Aug 2009 19:41:05 GMT

You can do a 15 yr loan with FHA.

Re: unusual situation

Lel — Tue, 11 Aug 2009 19:41:18 GMT

mt2va wrote:

@SonorityGenius wrote:
You can qualify for a FHA loan; 3.5% downpayment; list the home for $55k and buy it off your parents.. they can consider doing a gift of equity but I think buying outright from them would be your best bet.

Thanks for your reply. I looked up the FHA loan guidelines and it appears that we would qualify. I'm not sure I understand what you mean about buying from them outright. I didn't want to do the loan for $55,000 because that really seems like we are starting all over again for another 30 years. I was also hoping when we did the loan to do it for 15 years which would knock 2 more years off the loan. We could afford that.

Here's a possible workaround: You could "buy" the home from your parents for $55,000. After paying off the other loan, your parents will have a profit of about $19,000. They can give you $13,000 as a tax-free gift from parent to child in one year, and then give the rest to you as a gift the next year. With this money, you can pay down a chunk of your loan quickly and be more or less back to your current loan balance of $36,000. However, your monthly loan payments would not go down. So, if you finance $55,000 at 6% over 15 years, your monthly P&I would be $464. If you pay down $19,000 of your principal in one fell swoop, it will not lower your monthly payments, but you'd pay off your loan in 8 years instead of 15.

Check with the rules in your state regarding sales between family members.

With your credit scores where they are, you're not going to be able to qualify for the best rates. You may not be able to improve on your current 6% rate, but at least you would have the opportunity to get out of your ARM.

Re: unusual situation

mt2va — Tue, 11 Aug 2009 20:06:38 GMT

@Lel wrote:
@mt2va wrote:
@SonorityGenius wrote:
You can qualify for a FHA loan; 3.5% downpayment; list the home for $55k and buy it off your parents.. they can consider doing a gift of equity but I think buying outright from them would be your best bet.

Thanks for your reply. I looked up the FHA loan guidelines and it appears that we would qualify. I'm not sure I understand what you mean about buying from them outright. I didn't want to do the loan for $55,000 because that really seems like we are starting all over again for another 30 years. I was also hoping when we did the loan to do it for 15 years which would knock 2 more years off the loan. We could afford that.

However, your monthly loan payments would not go down. So, if you finance $55,000 at 6% over 15 years, your monthly P&I would be $464. If you pay down $19,000 of your principal in one fell swoop, it will not lower your monthly payments, but you'd pay off your loan in 8 years instead of 15.

This is what I wanted to avoid as that would make my monthly payments $200 more per month & I just cannot afford that in my budget at this time. (due to my car dying & I had to take on a new car loan a few months ago much earlier than I had planned to) If we have to do that my only option may be to put the extra money in a bank account & draw $200/month from the account towards my monthly payment.

Would each parent be able to give me 1/2 the amount so I would receive it all at one time? You mentioned $13,000 one year the rest next year. Wouldn't each parent be eligible to give me up to $13,000/year?

Re: unusual situation

Lel — Tue, 11 Aug 2009 20:33:50 GMT

mt2va wrote:

Would each parent be able to give me 1/2 the amount so I would receive it all at one time? You mentioned $13,000 one year the rest next year. Wouldn't each parent be eligible to give me up to $13,000/year?

This might be permitted. Search the IRS website for more information; the $13,000 is just what I recall reading elsewhere. It might also be possible your parents to gift the rest of the profit from the sale to your spouse.

Re: unusual situation

WannaHouse — Tue, 11 Aug 2009 20:45:41 GMT

The parents can also give them 6% for closing costs. I do not think there is any other way of doing this.

Maybe there is a way they can just give her the house and let her finish making the payments?

Re: unusual situation

Anonymous — Tue, 11 Aug 2009 20:56:41 GMT

I believe the exemption limit is at 12,000 this year.

Spouses can elect to split gifts, so 24,000 to you should be viewed as being 12,000 from each parent.

You need a tax advisor, this may trigger a taxable transaction, and I don't know if they would be exempt since they haven't lived in the house.

Re: unusual situation

mt2va — Wed, 12 Aug 2009 11:20:07 GMT

Thanks everyone for the suggestions.

@WannaHouse wrote:

Maybe there is a way they can just give her the house and let her finish making the payments?

They would have no problem with this but it still doesn't solve the original problem because the actual mortgage loan would still be in their name. Otherwise it really doesn't change anything as the loan has always been in their name and I've always made the payments. They are 70 & 78 & I have 17 years left on the mortgage. The odds are probably that one or both of them may not still be living when it is finished being paid off. They just want to plan ahead.

Re: unusual situation

Anonymous — Thu, 13 Aug 2009 00:26:44 GMT

mt2va wrote:
One of the problems seems to be the amount we want to finance is less than the minimum that banks will finance. I spoke to the bank that holds the current note and their current minimum to finance is $55,000. I haven’t actually discussed the amount that my parents want for the house, but I really don’t expect for them to ask for much more than the amount due to pay the loan off with the bank.

Did you check with more than one bank? If not, it'd be worth a phone call. You might try smaller local banks and credit unions.

Or if they're willing to give you the house, is there a way you can get a home equity loan or line and use it to pay them back?

Message Edited by rmily on 08-12-2009 07:26 PM

Re: unusual situation

WannaHouse — Thu, 13 Aug 2009 06:34:17 GMT

The only other thing I can think of is to have them add you to the title. If and when they pass, you are the sole person left on the title. I just don't know if that can still be added to the estate.

I would definately seek legal advice though.

Re: unusual situation

mt2va — Thu, 13 Aug 2009 14:27:25 GMT

Thanks to everyone for the various suggestions. I'm keeping a list of them so we can check each one out and see which would work. I'm still waiting to hear back from the current bank. I may also try NFCU since I have had good luck with them lately regarding loans.

I don't think there would be a problem getting the title into my name (once we've gone through the legal process) but we have to resolve the loan somehow.

Re: unusual situation

Anonymous — Thu, 13 Aug 2009 21:51:22 GMT

If the original mortgage is either an FHA or VA mortgage, chances are, it's assumable.

Have you looked into that? If it's the case, all you'd have to do is allow the lender to approve you (credit check, income verification, etc) to "assume" the mortgage as it is. There's not even an appraisal needed.

Crossing my fingers for you!!

Re: unusual situation

mt2va — Fri, 14 Aug 2009 18:57:51 GMT

@Anonymous wrote:
If the original mortgage is either an FHA or VA mortgage, chances are, it's assumable.

Have you looked into that? If it's the case, all you'd have to do is allow the lender to approve you (credit check, income verification, etc) to "assume" the mortgage as it is. There's not even an appraisal needed.

No I don't believe it was as at the time the original loan was taken out it was a 2nd home mortgage for my parents as they owned a primary residence at the time. Which is part of the reason we had to take out an ARM etc

Thanks to everyone else for their ideas. I heard back from someone at the bank today finally. Their suggestion was to go through a lawyer to have the title put in my name. Once that was done I would apply for either a home equity loan or LOC and use that to pay off the current mortgage.

The pluses to this would be the loan criteria is not as strict. They pull only from EQ (my best report) rather than all 3 like a regular mortgage would. No closing costs. (bank will pay up to $750 & they said the costs average $600) No money down required.

Does anyone see any downside to this? I talked at length with her about my income, credit score, etc I have to talk it over with my parents and see what they want to do and then she will run some numbers for us. I don't really know if an equity loan or LOC is the better way to go. Any thoughts?? The one thing about keeping this with the same bank as that when she sends the paperwork for approval she can include all the details about the situation including that I'm the one that has been making all the payments for 12 1/2 years on this loan. I have cancelled checks that prove this was paid by a check on my checking account.

Kind of an interesting way to buy a house and seems much less stressful than what I read people are going through on here. Does anyone know what paperwork an equity loan/LOC will require?

Re: unusual situation

medicgrrl — Sat, 15 Aug 2009 14:10:01 GMT

The Equity loan or LOC may seem less stressful but it will probably have a higher rate.

I would seriously consider the FHA with the gift of equity. You would probably qualify with your scores because your down payment will be so high. You can easily work the numbers so 1) you have no out of pocket expenses 2) your parents will not have to pay anything 3) your loan amount may be a bit higher to cover the amount of closing costs 4) You can either go with the 15 year loan or a 30 year and make higher payments to pay it off in 17 years as planned.

You need to consult a tax advisor and find a good loan officer who understands how to structure the numbers. I think this would be a pretty easy loan to get done if structured correctly.

Also, double check on giving the gift individually to you and your spouse and separately from each parent. I think that may be a way around the gift and taxes.

Another thing, besides the possible higher rate, when the deed changes names the lender has the right to call a loan due and payable. I wouldn't necessarily look for the easist way as much as I would look at the best and most legal way.

Re: unusual situation

mt2va — Sat, 15 Aug 2009 22:32:40 GMT

I guess my wording was a poor choice. But if you go back & read my earlier posts a loan is not feasible because #1 I have no down payment, #2 I could not qualify credit wise pulling all 3 bureaus, #3 they won't do a loan for $33,000, etc

I know in most instances on here people are told if they can't do this then its not time for a home yet but our situation is a little different. We are already able to afford the house note, insurance, taxes, etc as we have been paying them ourselves for 13 years now.

I know the interest rate will be higher but that is due to my credit issues. I don't think we are trying to do anything that is illegal. The bank itself called and told me this option as well as at least one other poster on this thread mentioned the same idea.

Re: unusual situation

medicgrrl — Sun, 16 Aug 2009 00:59:12 GMT

@mt2va wrote:
I guess my wording was a poor choice. But if you go back & read my earlier posts a loan is not feasible because #1 I have no down payment, #2 I could not qualify credit wise pulling all 3 bureaus, #3 they won't do a loan for $33,000, etc

I know in most instances on here people are told if they can't do this then its not time for a home yet but our situation is a little different. We are already able to afford the house note, insurance, taxes, etc as we have been paying them ourselves for 13 years now.

I know the interest rate will be higher but that is due to my credit issues. I don't think we are trying to do anything that is illegal. The bank itself called and told me this option as well as at least one other poster on this thread mentioned the same idea.

Your down payment is the gift of equity. Because of the amount of equity you/your parents have I really think you could get an approval with FHA thru DU or LP. Your hurdle is finding a lender that will do the loan amount. Have you tried going directly to a mortgage lender instead of a bank? You need to consult a tax advisor and find a loan officer who knows how to structure this. I really don't think it will be as difficult as what you are thinking.

I can't remember exactly what you said the value was but just as an example of $84,000...then you both receive gifts of equity from your parents totaling $44000. Your loan amount would be $40000. This would include your closing costs and the payoff of the current mortgage. Your loan to value would only be 48%. Based on that I really think it would be approved thru automated underwriting. As far as the gift, with a little research on the IRS website you can probably find your answer. I'm sure if you look you can find a lender who will do that loan amount. A little more research could possibly save you money in the long run.

Re: unusual situation

SonorityGenius — Sun, 16 Aug 2009 01:04:25 GMT

I think a broker is your best bet because of the different lenders they KNOW whom to send your file too!

But, I am not sure lenders will even consider doing mtg loans below 50k

Re: unusual situation

mt2va — Tue, 18 Aug 2009 18:04:38 GMT

Thanks for everyone's suggestions. Looks like we are back to trying to figure out something else. Talked to the lady from the bank again on Monday & she told me they only had 15 year equity loans & LOC even though previously she told me 20 year & 30 year were available. The 15 year loan is higher interest rate & would make our monthly payment go up almost $100/month which we just can not afford right now.

If anyone can think of anything else I'm keeping a notebook with various ideas & will continue to check into them.