Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
My cousin and her husband buying a house from a friend -- they borrowed "X thousand" from my aunt because the friend's house is up for foreclosure (job loss stuff), and they used the money to pay up the friend's mortgage so the house would not foreclose while they (my cousin) are looking for financing. Kind of risky, I think, but apparently the friend is a solid, honest person, so my cousin doesn't expect to lose on the deal. The amount now paid up on the arrears mortgage is being deducted from the price of the house, so my cousin and her hubby will have a somewhat lower mortgage loan.
Took a while for all the paperwork on the above to get done, so cousin now setting out to get financing. They have good credit and all. This loan from my aunt does not technically need to be repaid even though my cousin would prefer to do that.
Are there any pitfalls in this overall situation that would be of concern to a mortgage lender? Like, will the lender care that they pulled this house out of foreclosure so they can buy it? I guess it might be a fairly common thing these days, just wondering about it.
[Note: I had posted this in my other thread about "can a lender ask what money was spent for", but I've seen no replies to the above question, so maybe I needed to post it as a separate question. Sorry if I have goofed this up.]
This would be considered a non-arms length transaction since the parties had a relationship that arose from something else other than the purchase of this home.
If they have 20% down, not much of an issue with conventional financing, or if they have put down 15% with FHA financing then it's also not an issue.
So the money they used to pay up the mortgage arrears could be viewed as a down payment? Would they be okay to approach a mortgage lender with the information that way?
Didn't know if a mortgage lender would be upset about them paying up the mortgage arrears in the first place.
Is the home even worth what the former owner owes on it? Lets say you bring the payments current. If the home is now worth less how will that effect this outcome? I would think a bank would only want to loan what the current market value of the home is.
So the money they used to pay up the mortgage arrears could be viewed as a down payment?
The money would not be viewed as the down payment. They would need 20% of the contract price (or sales price) as the down payment. This would be on top of the money paid to keep the house out of foreclosure.
It sound risky to me as well. I hope they have their full agreement in writing.
When we went through our mortgage process, they were very strict. We had to account for any deposits (savings & checkings) made within the past two months (as well as while waiting for closing) so the mortgage company will definitely require an explanation.
Like Hokie said - can't be used as a down payment. A non-arms length transaction undergoes greater underwriting scrutiny.
Personally I don't see anything wrong with what they did, as long as they are earnest in their intentions to occupy the home. There is nothing wrong with wanting to buy a home, and putting money into it before hand, whether to make improvements to a home in order to pass an appraisal or to financially help out the homeowners so they can continue to own the home and sell it on their own terms.
However this is a prime example of a straw borrower who is bailing their friend out of a bad financial situation, one which the borrower will never occupy the property and will rely on their friend to make the payments... not saying that is your cousin's situation, but you can see why an underwriter would be skeptical since the situation I described happens more often than most people think.
No, in this case my cousin and her hubby will in fact be buying the home -- they just wanted to be sure the place didn't go into foreclosure because they couldn't afford to pay cash for it and they want the house. Plus, this way, they help save their friend's credit. Ultimately they won't be paying any more for the home than if they had bought it earlier, it's just that now they will be borrowing less from a mortgage lender.
Apparently the house is worth somewhat more than what the owner still owes on it, so the value seems to be okay. Cousin will end up borrowing even less than the appraised value, which I would think a lender would be pleased with.
Thanks very much for the responses and information!
Welcome. They just need to be prepared for the potential down payment requirement. For FHA this certainly would be a 15% down situation, and conventional it shouldn't have issues with 20% down but less than 20% down it either needs a 2nd mortgage loan approval or mortgage insurance, both which have less lenient underwriting guidelines than 1st mortgages. It may be possible with less than 20% down and conventional, but becomes less likely.
What happens if she doesn't get financing and the friends get into arrears again? She's lost your aunts money and the home.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
