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Old 07-19-2012, 09:23 AM
 
Location: Bike to Surf!
3,080 posts, read 9,699,138 times
Reputation: 2977

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(Reposted from the Economics Forum where it got no responses)

Hello all, I have a complicated RE question which I don't expect to get answered here, but maybe I can get a sense of the possibilities from member's experiences and expertise. I know that this will eventually have to involve accounting and legal professionals.

My wife and I are currently renting, but we plan to buy a house within a year or so. I have an excellent credit score, and she has a good credit score.
Her brother (my BIL) also wants to buy property in New York, but he is here on a student visa. He has sufficient income from investments in his home country to pay/qualify for the loan, and can put down >30% on the property, but the bank has told him that he cannot get a loan without the ability to work and live permanently in the US (through an H, L, or other Visa, or Green Card). He is a white-collar professional with an advanced degree, and expects to be able to obtain a work visa once he is out of school; in a year or so.
We are trying to understand if/how my wife can purchase the property for her brother. He would pay all the associate costs, live in the property, and then take over the loan once he has a visa or permanent residency. Or, barring that, the property would be sold and whatever gains or losses were associated with the sale would go to him.

Part 1 (titles, taxes, and payments):
We want to be careful to stay legal in terms of taxes and title holders. Theoretically, my wife could purchase the property herself and then her brother could make payments, but I believe his contributions would be considered taxable income since my wife is the titleholder on the property. Can a family member be included/make payments on a loan without a tax penalty? Is there another way to do this, perhaps by having my wife form a LLC with her brother to purchase the property? Then there would seem to be additional complications with insurance and owner/tenant designations, and transfer of title once her brother is a PR or if the property is sold. Ideas? Suggestions? Comments?

Part 2 (risk and credit availablility):
We also do not want to damage our ability to purchase our own property in the near future. The question here is: is it possible for two spouses to purchase properties independently of one another? If my wife is the mortgageholder on one property, will this affect my ability to get a loan for our home based solely on my own finances? Can married couples keep their assets and liabilities completely separate?

Of course I recognize the risk that my BIL will--for whatever reason--not be able to make payments. However, as (possible) titleholder of a property which would be ~30% owned after his down payment (the remainig 70% being the bank's), the risk is really on his side, and not my wife's, since he'll have sunk significant capital into the property. Even should she be stuck as the sole titleholder and have to sell the property at a loss, it's unlikely to be a 30% loss.

Thanks in advance for your input. I have a feeling that the answer is that the time/expenses we will incur trying to do this might be greater than the money lost to rent and price increases over the next 1-2 years, but maybe not.

The yearly cost of renting is on the order of 25K, but loan payments would about equal that, and the 1st years principle payments (as opposed to interest, taxes, and insurance which is the same thing as money "thrown away" on rent) will be only a marginal benefit, maybe 2-3K. He hopes to rent out a room in the property, which would probably bump the benefit up into 10's of thousands. The real question is what will rates and prices do during the next 1-2 years. Almost certainly they will go up, but by how much? Probably a fair bet to say that the benefit of buying now as opposed to waiting will be--at a minimum--10-20K, which ought to more than offset the additional legal costs and headaches.

Thanks again for your responses.
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Old 07-19-2012, 09:39 AM
 
Location: The Triad (NC)
26,905 posts, read 58,020,547 times
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wot tl;dr
do some editing... break down or isolate the questions from the background info
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Old 07-19-2012, 10:09 AM
 
Location: Lexington, SC
4,281 posts, read 10,305,171 times
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sponger

And what happens when you and the wifey divorce?

Never do business with friends nor family, especially the in-laws.
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Old 07-19-2012, 10:21 AM
 
Location: Baltimore
1,759 posts, read 4,267,900 times
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Tell your BIL to wait a year then buy a home on his own. Much of your plan could be construed as mortgage fraud.
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Old 07-19-2012, 10:23 AM
 
Location: The Triad (NC)
26,905 posts, read 58,020,547 times
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Quote:
Originally Posted by accufitgolf View Post
Never do business with friends nor family, especially the in-laws.
Was that the question? Assuming so... that is good solid advice!
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Old 07-19-2012, 12:56 PM
 
Location: Kailua Kona, HI
3,199 posts, read 10,982,038 times
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A real estate attorney and a tax professional are really needed to help you decide but basically, I would suggest that you and your wife buy your own home, and let her brother buy his when he can legally do so. to me this amounts to co-signing for a mortgage which I never recommend.
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Old 07-19-2012, 01:26 PM
 
Location: Bike to Surf!
3,080 posts, read 9,699,138 times
Reputation: 2977
accufit: That's not a serious concern.
davecj: There is no plan yet. I am trying to find out what is legal and what is not.

Thanks KonaKat. I understand your position and appreciate your recomendation. Can you provide a link which would give details on co-signed mortgages? I would like to get some background to see if it's even worth a consultation with a RE and tax attorney.

Simplified questions: Answer as you please.
1. Can a family member (brother) pay all or part of a mortgage held in another person's name? Can an outsider, for that matter?
2. Can a mortgage have one party (sister) who meets the requirements of the lease, and also have another party (brother) who would not, alone, meet the requirements, but who will pay the monthly mortgage/closing costs/etc.
3. If there is such a multi-party mortgage, can it then be later transferred to one of the parties without tax penalties (provided the lender agrees, of course)?
4. Can several parties form a corporation to cooperatively purchase a property? What are the tax implications when the corporation is dissolved and the assets divided up among the partners? I'm guessing that the increase in value of the property will be taxed as income.
---
5. Can a spouse hold a mortgage without (drastically) affecting the ability of their partner to get a different mortgage? I understand that we'll be unable to use her income to secure a second propertie's mortgage--since she's already tied to another property--until her brother becomes the sole mortgageholder or the property is sold.

We have experience forming and dissolving companies with both family and third parties, but not in the Real Estate world, so I'm not sure how much of our experience applies.
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Old 07-19-2012, 02:17 PM
 
Location: southwest TN
8,182 posts, read 14,281,076 times
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You really need the advice of an attorney.
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Old 07-19-2012, 03:33 PM
 
Location: Richardson, TX
10,188 posts, read 16,752,987 times
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Quote:
Originally Posted by sponger42 View Post
Simplified questions: Answer as you please.
1. Can a family member (brother) pay all or part of a mortgage held in another person's name? Can an outsider, for that matter?
2. Can a mortgage have one party (sister) who meets the requirements of the lease, and also have another party (brother) who would not, alone, meet the requirements, but who will pay the monthly mortgage/closing costs/etc.
3. If there is such a multi-party mortgage, can it then be later transferred to one of the parties without tax penalties (provided the lender agrees, of course)?
4. Can several parties form a corporation to cooperatively purchase a property? What are the tax implications when the corporation is dissolved and the assets divided up among the partners? I'm guessing that the increase in value of the property will be taxed as income.
---
5. Can a spouse hold a mortgage without (drastically) affecting the ability of their partner to get a different mortgage? I understand that we'll be unable to use her income to secure a second propertie's mortgage--since she's already tied to another property--until her brother becomes the sole mortgageholder or the property is sold.
3) There's no transferring a mortgage. Once you sign that note, you are on the hook unless it is refinanced without you or paid off.

5) You can use her income to secure a second mortgage, if you and she earn enough to pay for both mortgages and any other debt.

Your wife can apply with her brother as a non-occupant co-borrower, but I wouldn't recommend it if you are not confident that you two earn enough to comfortably qualify for both homes, as helping your BIL out could come at the expense of your own financial goals.
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Old 07-19-2012, 10:18 PM
 
Location: Kailua Kona, HI
3,199 posts, read 10,982,038 times
Reputation: 3379
"details on a co-signed mortgage" simple. you are jointly and severally responsible for the debt no matter who lives in the house or who actually makes the payments. Call any lender you please and ask them. you don't have to be their client to find out what it means to co-sign a mortgage.

sure, anyone can make a mortgage payment for another person. the bank does not care who's writing the check just as long as it's paid on time every month.

Call your attorney and CPA and before you sign your name to repay hundreds of thousands of dollars, spend a few hundred on some professional advice for your particular situation.
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