Sell, hold, the Re-Buy?

I could not find a clear answer to my weird question, and wasn’t sure how it fit in to the other topics so…

The basis of the my question is I am thinking of selling my home to my ex-father in law, to hold and rent back to me, to be repurchased at a later date, perhaps 6mos to a year.
I am looking to find information/ideas/legalities of this idea.
I am not upside down in the mortgage and not looking to swindle anybody, but I need to re-fi and do not have the credit score to do so. This would allow me to use the equity in the home pay off some debt, and buy back the house at lower than my current 6%.
Please ask any pertinent questions so I can post other information.
Thanks in advance,

I don’t see how you can save money. Most newer mortgages have a “due on sale clause”, which means the bank needs to approve the transfer back to you. So, if you have bad credit and your ex-father in law has good credit, why are they going to let you assume your ex-father in law’s mortgage, let alone give you the same lower rate of interest he got (unless he’s going to co-sign the loan to reduce the bank’s risk)? If your credit score shows you to be a high risk, they’re gonna demand it be paid on transfer.

Plus, you have early discharge penalties, legal fees, appraisal costs, and land transfer taxes. What makes you think you’re going to save money?

Thanks for the answer, and the good questions. Needed to mention I currently have a private mortgage, not sure how this would factor, except that it would not be a bank being paid off, so I would hope a little ease there. There is also the issue that my mortgage is not reported to any credit bureau, hampering my score even more.
My second thought is my credit is not bad, just a high debt to income ratio. I am a small business owner, and shown income can be a bit shaky with what I can write off. And apparently, all benefits or loopholes for SBO’s are closed in the real estate sector. Not that I am well to do, business is very difficult in this economy, and thus the higher debt to income ratio.
And even if I do not then qualify for his excellent rates, I am sure I would do better then my 6%

What you’re talking about here is a Sale-Lease back. Its done a lot in the commercial sector but not so much in residential.

If you sell to your father-in-law this means either he has to buy it cash or go get a new mortgage. After he buys it, you would rent it from him for enough money so that the mortgage, taxes and insurance is covered. Here’s what you need to consider…

  1. What happens if you can’t make rent? Are you willing to move out so can rent it to another?
  2. How long before you fix your credit issues and buy back the property from him?
  3. Will you be officially signing a lease agreement with him? Who takes care of the maintenance of the property?
  4. Will you be buying the property for the same amount that you sold it for to him in the future whether the property value goes up or down?
  5. If you cannot buy the property by the designated time, what happens then?

You need to understand all the implications of doing this type of deal and have a planned solution before moving forward.

6% sounds like a good rate for a private mortgage. Was it a vendor take back? The only time I’ve seen mortgages recorded on an Equifax report was with a HELOC (home equity line of credit)–I pull credit bureaus every time a tenant applies so I’ve seen hundreds of credit reports.

The higher debt to income ratio sounds like a major sticking point. I’ve noticed that this year banks and credit unions are also pulling secret BNI index scores. A BNI from what they’ve told me is basically a score only the bank or credit union can see where they use a formula that determines the likelihood that you’ll go bankrupt in the next 24 months. It apparently ranges from 150 to 350. So, if you pull your credit bureau and see your FICO score of 700 believe your credit is really good and apply for a loan or mortgage and are declined, it may be because your BNI score was really low like at 200 (meaning you’re very likely to go bankrupt in the next 24 months). A BNI is based on the amount of debt you carry and only the banks and credit unions can see it. With all the mortgage defaults in the past couple years, it seems they’re putting a lot of weight on BNI scores.

I’ve even spoken to mortgage brokers who’ve told me about clients declined with high FICO scores because the banks said they had a low BNI and apparently these mortgage brokers can’t even see these BNI scores either. But, there seems to be an agreement it’s there and it’s based largely on an algorithm of the amount of debt you carry to your ability to pay it off against a national average. The fact that you make payments on time has no bearing on the BNI score–that has to do with your FICO score.

In any case, with BNI scores coming into play, I wouldn’t bother trying what you are trying to do through a bank as you’re going to rack up a lot fees for a conventonal mortgage they’re not gonna let you assume. BUT, saying that, I would suggest you use that free half hour initial consult from the local bar’s legal referral service to talk to a lawyer about other options to your situation because depending on where you live there may be legislation that can give you some other choices on reducing things like credit card debt load/interest or preventing a lender from foreclosing on you or raising your interest when it comes up for renewal provided you haven’t missed any mortgage payments.

Great questions, Thank You,

To Joolkano ;

  1. I have never even been late on a rent/mortgage payment, with 4 kids, housing comes first.
  2. I should be able to pay off my debt’s and get ahead almost immediately.
  3. The more I hear, it would be best to sign an agreement. Although as a jack of all trades, I tend to take care of the property I live on no matter who owns it.
  4. I planned on a yes to that. I live in a pretty stable community.
  5. That would be a wait and see I guess. i don’t forsee any issues unless the Mayans were right in that case it won’t matter.

davewindsor ;
Great info and good advice, I thought about the credit counselling but don’t want to give away my credit. The going for the free advice is another good one, I will look into that.

As I currently see it, I should be able to sell the house, pay off the mortgage holder, pay off all debts, bank 20% for the buyback, and drop about 6 tons off stress off my back. Really I could use some breathing room.

The only way that I foresee that this will work is if your ex father in law is the bank. Does he have enough money to do that? They won’t care who buys it from you but as said, the problem is when you want to buy it.

Bad credit is going to stay there for awhile. If you are using a credit repair company, banks will think a little better of you but not what you will want in interest rates.

Any chance of just doing the refi with your father-in-law as a cosigner.
If he’s willing to stick his neck out that should be the easiest and best solution.