My mother recently has had some financial difficulties and is unable to cash out the equity due to the adverse affect it has had on her credit. The house is worth 250k with a mortgage of about 140, however, she has a HELOC of 7k, and owes about 7k in back taxes. I am looking for suggestions on how we could sell the property to me or get it in my name so I could refinance it because I have decent credit (680 Transunion and 720 Experian). I was wondering on how we could go about structuring a transaction. Our first thought was having her add my name onto the title and I could refinance it under my name and remove hers so her bad credit would’t affect the interset rate. She is also willing to hold paper and has also talked to a loan officer who suggested 175k of financing and have her hold 75k but it was at 7.95% and I thought that was ridiculous. I am a 22 year old student and I am self-employed and work part time for an additional $15,000 a year, but will be starting a full time position in August at a Salary of 50k. I could have a family member co-sign but I would only like to do that as a last resort. I would greatly appreciate any feedback and suggestions on what to do or where to go. Thanks.
The sale needs to be an arms length transaction or the lender will not make the loan and the title company will not insure the transfer. I am working on the same problem with the house I live in and my sister getting a loan for me. She has a different last name but we are related just the same. The mortgage broker wants to ignore this but it could be a problem. My lsat house I sold to a friend and then he sold to my dad and we did basically the same deal. I actually owned that house under a contract for deed.
You may need to go with the higher rate. I would suggest a good lawyer too for some help
If her midlle credit score is at least 500 (475 in some cases), she should have not problem refinancing the mortgage and taking cash out of the properties, regardless of collections, etc.
As for placing in your name for rate purposes you can easily do better that the rate quoted at the LTV specified. You will want to family transfer at settlement to avoid transfer stamps/taxes. You shouldn’t have issue with arms length transactions on a family transfer, but the preferable way to get aroung this would be a gift of equity. All legal, all ethical
Someone who know what they are doing should be able to get you between high 5 and mid 6’s dependent on credit depth, whether you live at the same residence base on your scores
Thanks for the advice. What exactly is a family transfer? And as for the gift of equity, how exactly does that work? I know you are only allowed to give a gift of 11k per child or something like that so she could give 22k, but would we have to pay tax on the remaining amount right away? Thanks.
It’s actually two seperate deals. The family transfer will avoid paying the transfer stamps or tax in nearly all states which should save you and your mother anywhere from 2 - 5%.
The second if the issue of arms length transacion. The bank will balk if the amount of money that is accounted for (loan, downpayment, seller second, gift) is too small a percentage of the home’s worth. The gift of equity helps bridge the gap - if you have another sibling you could have them put on title without putting them on the note to double the gift, but then they would have a 50% interest in the home. This probably won’t be necessary with a 175k loan, gift of equity and a good appraisal.
Did some reading up on gift of equity. Just on a quick check the lenders do not specify a limit on equity gifts - you will need your mother to complete a form and certify it.
You’ve got yourself a very workable situation. Have the deal structured as a straight fsbo purchase. You’ll need to complete a sales contract and gift of equity letter. Notify settlement that the transaction is a family transfer.
Last and most important - you will need to do this as a stated bfs (self-employed) or no doc loan or wait until August because it is highly unlikely your debt to income ratio will work out otherwise (ideally debt 50% of gross income, sometime allowable to 65% under fannie/freddie with strong compensating factors).
If your not sure what to do with this part you should contact someone who can structure the deal so you don’t cause yourself issues