I'm thinking about taking a mortgage for my parents, so that they can purchase a home. Here's the situation: My parents have lived overseas for years and have very little credit history, however they recently inherited 100K+, want to buy a home with the money. With their income & lack of credit history, they can't qualify for a good mortgage, but have the cash to buy it outright. I don't want them to spend all their money on a house though (what about retirement savings?), so I want to know if it's possible for them to put down 100K, and I'll take a mortgage (in my name) on the remaining 50K of the purchase price (total 150k) Will banks allow this? I have decent credit and income, (and since I'd only be financing 1/3rd of the home value, it should be low risk to the bank). Thoughts?
What is the lien against? Your parent's house? Are you partial owner? Are you co-signing? Are you the borrower, or are they, and who can deduct the interest payments and property taxes? If they are not buying it for cash, do they have the income to support the payments? How are you protected, if for example, they have an accident, are found liable, and the plaintiff goes after "their" house? If you are an owner, how do you protect yourself from liability due to the property? These are a number of the issues to work out. Structure it wrong and you could have a big headache.
If I woke up in your shoes, I would NOT do it. By purchasing a home with 100% down, they can typically get a better price than if they were financing the home. Imagine telling the seller "I can close by Friday if you sell me the house at $XXX,XXX." I imagine I would be motivated to sell if I knew a potential buyer had cash outright. Hell, that's why we work to pay off our mortagages. In order to lower risk, and raise our assets, and become debt-free! Well, I do anyways. I suggest you honestly performa a risk assessment of the situation before you decide on what you want to do. I know your heart is in the right place, but you need to consider the implications of Murphy's Law. It applies to everyone. By co-signing the mortgage, not only do you make yourself financially liable for the payment of the property's mortagage, but you also expose yourself to the liability risk of an accident. Let's say mom & dad have some guests over, and they fall down the steps. Mom, Dad and you are liable! A litigious "friend" can make your life a nightmare. You said they don't qualify for a mortgage. Under Fannie Mae, and FHA lending guidlines, if you meet these three items, you qualify for a mortgage: 1. Have paid your landlord on time, or early for at least two years, 2. Have current employment and 3.Have a good down payment, and are not trying to buy to much house. They will need to find a lender who does Manual Underwriting, and doesn't give a flip about their credit scores(Lending For Dummies). This is how I got my mortgage. Take a look at my scores, and you'll see that I'm telling the truth! You said that you didn't want them to spend their money on the house, but why not? With no house payment, no credit cards, and no debt, why wouldn't they be able to save money in a Roth IRA? They could seriously sock away some dough! I will point you to www.daveramsey.com and suggest that you e-mail this question to him. I've heard several questions on his radio talk-show with situations like yours. This is the best advice I can give. Keep us posted!
I'm trying to read this carefully are you wanting to purchase the home in your name alone and use your parents 100K as the down payment? who will be making the monthly mortgage payment? are you planning on adding them to the title ?
More details... Like I said, it's a weird situation. They live overseas, but want to buy a house for when they retire back to the USA. They're worried that by the time the retire (10-15 yrs), home values in the Chicago area will have increased to the point where they can't afford one. So, the idea is that we would jointly buy a home (their 100k downpayment, me taking a 50k home loan = 150 purchase). Once we owned the home, we'd rent it out to cover the costs of payments, ins., & taxes. Ideally I wouldn't have to pay anything (but by only borrowing 50k, in a pinch I could cover several months of payments without too much hardship). Basically it would be an investment for the next 10-15 yrs, and then my parents would "buy me out" if I had any equity in the house. That's the idea any ways, but I haven't really figured out all of the downsides yet, like what impact this would have on my ability to buy my own home ( a 15yr 50k loan should only be about 400/month in payments), or my liability. I suppose I would need an attorney to draw up the contract. My biggest concern is that they try to skimp and buy a home that won't appreciate in value, or that they blow all their money, and are forced to sell the home in an emergency.
I don't mean to be obtuse....but you mentioned earlier that they *could* buy it outright for cash, but you don't want them to tie up their "retirement" money? So...do they have cash, or do they have money tied up in retirement instruments? If they have ALL the cash, they should certainly buy the property outright. You mention that they have 10-15 years until retirement. Why should they SPEND money on interest, instead of MAKING money on an investment property? Besides, once they own the property and it's seasoned a year or so, they could just borrow against it to do other things, i.e. reverse mortgage, etc. Paying interest for no reason at all just doesn't make sense. But...if you DID want them to buy it, for those prices, they could. With that much down they'd have no problem doing a "No Doc" loan, which basically verifies you are who you say you are, and that you have an income stream. Second, if they plan to retire here, you should get them to start building credit NOW. They can get cards under their SSN, with your address. They could use those cards in their part of the world andpay them directly. This will be important for them in the future. aiki
yeah the above poster has it right, a home is a retirement investment especially bought in cash, think about theinterest u toss out on a home.. even on a 50k loan..
If it's going to be a rental (investment) property, that puts a whole different spin on it. You're going to find it harder to get a mortgage than if it's owner-occupied, and the rates will be higher. What about you buying a house and they help you make payments? They can each give you $11K a year without tax implications, so they could give you up to $22K a year. That way, they would in essence be making payments, you would be able to live there, and it could be in your name. When they come back, you rent it to them or "sell" it to them. Besides the mortgage issues, and the "what if they blow their money" issues (this way they wouldn't, they'd be giving it to you each year), you may have gift tax issues, depending on how it's structured. Also, with a rental someone needs to manage it. I'd recommend paying someone to do that, instead of doing it yourself. Renters are more likely to not keep the house up, maintenance in the long run becomes a bigger expense. Why do they have to retire to Chicago? If they put their money in a good investment, they should be able to at least make a good down payment on something when they retire, and pay the payments from their retirement income. They might want to actually make minimal down payment, use the money they've invested all these years to make payments, and when they die the house will be sold to pay the mortgage. Debt isn't necessarily bad. Col. K0rn, you should look at this web site and see that you need to learn to use other people's money. Pay special attention to the article most of the way at the bottom about never owning your home outright.
Perhaps they put the money into an investment account, and in 10-15 years they have a huge wad of money to buy what they want. Over the past 70 years, the NYSE has averaged a 12% rate of return. Some funds do better, some do worse; but as a general rule, they would be better off to just put the money into a mutual fund, and sit on it. That's what I would do if I woke up in your shoes.
You are in a situation that really requires better advice than can be obtained on any internet forum. Are your parents American citizens? What makes you so sure they have "no credit history"? What is the source of their $100,000 ? Savings? Investments? Inheritance? Whatever they buy or invest in, they will have to account for the source of the funds. Even if this were a good idea legally, (which it is NOT), it is a TERRIBLE idea from an investment point of view. Rental properties are, at best a break even investment for a single family home, and the chances of rent skips, vacancies, repairs and expensive eviction legal proceedings over a 10-15 year period bring the risks of loss to a certainty. And that assumes that you are willing and able to manage the property for that entire time at no cost to them. What makes you so sure they will want to retire to Ill.?? If you are SURE they want to do that, they are better off finding a new residential community and buying a building lot. At least that way there would be lower taxes, no insurance and minimal maintenance, plus they can be assured of an increase in the property values without any attendant problems.
