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Old 12-09-2008, 10:36 PM
 
2 posts, read 9,956 times
Reputation: 11

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I am living in a home in which in which a friend of mine and I bought together nearly 8 years ago and the house is in their name only. My friend moved out several years ago and all the financial details were worked out so that the house is "mine" and I make all of the payments. The house remained in their name as my credit was on the mend. Now my score is nearly 800 and I am in a position to purchase the home at the remaining balance of the mortgage.

I need advice on how to keep the closing costs as low as possible without severely breaking the law. My friend will help me in any way possible. We purchased the house in 2000 for 100k, there is 89k remaining. CMA in the area is around $125-135k in this market. I estimate it would take around $10-15k to get it to that condition.

The other factor is that I will be looking to rent the house once I complete the purchase. For cost's sake, I thought of just leaving it in my friend's name, but my friend is concerned if something were to happen to them, I would have no right to the house. Now that concerns me as well.

My friend has kinda just put me in charge and told me to tell them where to sign. Theirs and my main concerns are doing it pretty soon and not costing them anything and costing me as little as possible.

The loan is not transferable.

Any assistance would be greatly appreciated. Thank you in advance.
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Old 12-10-2008, 01:05 PM
 
Location: Greenville County, SC
275 posts, read 1,756,094 times
Reputation: 196
Default Somthing Similar

Quote:
Originally Posted by ebay_red View Post
I am living in a home in which in which a friend of mine and I bought together nearly 8 years ago and the house is in their name only. My friend moved out several years ago and all the financial details were worked out so that the house is "mine" and I make all of the payments. The house remained in their name as my credit was on the mend. Now my score is nearly 800 and I am in a position to purchase the home at the remaining balance of the mortgage.

I need advice on how to keep the closing costs as low as possible without severely breaking the law. My friend will help me in any way possible. We purchased the house in 2000 for 100k, there is 89k remaining. CMA in the area is around $125-135k in this market. I estimate it would take around $10-15k to get it to that condition.

The other factor is that I will be looking to rent the house once I complete the purchase. For cost's sake, I thought of just leaving it in my friend's name, but my friend is concerned if something were to happen to them, I would have no right to the house. Now that concerns me as well.

My friend has kinda just put me in charge and told me to tell them where to sign. Theirs and my main concerns are doing it pretty soon and not costing them anything and costing me as little as possible.

The loan is not transferable.

Any assistance would be greatly appreciated. Thank you in advance.
I had something similar years ago in Cailfornia except both names were on the title and mortgage. We did a Quit Claim deed to transfer the title to just one person, then that person refinanced into a mortgage in their name only.

Normal closing costs had to be paid for the refinance.
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Old 12-10-2008, 02:32 PM
 
28,455 posts, read 84,914,994 times
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This is not too hard. Technically the safest and easiest thing to do is probably a common "non-arms length transfer" as if you and your friend were getting divorce. It is called that because most sales are assumed to be "arm's length" to signify that the buyer & seller do not know each other and you two do.

An attorney can review the contract, a few hundred dollars ought to be sufficient.

As far as financing, it makes a difference as for this home remaining owner occupied. I would think long and hard about immediately making it a rental... If you have sufficient income (only need about $40k, assuming this is your only debt) your credit score looks good, and the equity is hopefully there to avoid PMI.

A strategy that you might pursue is to consider the equity that you have built up over the years will be "gifted back" so that you will not need a cash downpayment.

Closing costs might be pretty small -- $3,000 dollars or so. You and your friend would agree to a "price" that would pay off the mortgage and not leave any profit OR probably smarter would be to agree to a "price" that would leave enough proceeds from the new loan to do any renovations that are needed, though it sounds like that be leaving things tight on the appraisal and potential for PMI. If you do need to do some renovations then you should consider HELOC as well.

I have a little bit of bad feeling that many mortgage brokers will not be excited about this. In the past many divorce situations also needed to do stated income / stated asset kinds of loans so that mom could technically 'afford' the house with the promise of dad paying alimony. Though this DOES NOT APPLY in your situation, that might not be clear to them. You might need to seek out lenders who realize this. Not sure if a divorce attorny would have contacts with lenders that do a lot of these, but that might be one avenue to pursue...
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Old 12-10-2008, 09:58 PM
 
2 posts, read 9,956 times
Reputation: 11
First of all, thanks for taking the time to provide some options. If you have a little more time, I have a few follow ups.

Quote:
Originally Posted by chet everett View Post
This is not too hard. Technically the safest and easiest thing to do is probably a common "non-arms length transfer" as if you and your friend were getting divorce. It is called that because most sales are assumed to be "arm's length" to signify that the buyer & seller do not know each other and you two do.
Is it really possible to have the home transferred to me? I understood that I could probably get added to it, but I didn't think it could solely be in my name if she still had the mortgage.


Quote:
Originally Posted by chet everett View Post
As far as financing, it makes a difference as for this home remaining owner occupied. I would think long and hard about immediately making it a rental... If you have sufficient income (only need about $40k, assuming this is your only debt) your credit score looks good, and the equity is hopefully there to avoid PMI.
I understand a little about owner occupied vs. rental property, but I will not be able to occupy it long as I am possibly moving out of state within 2-3 months. This is not certain though, so I have to purchase it as if I will occupy it because I will need to until my plans are certain. I don't know what choice I have. I just know if things come together, I will move and will need to rent the house. How can this bite me legally?

Quote:
Originally Posted by chet everett View Post
A strategy that you might pursue is to consider the equity that you have built up over the years will be "gifted back" so that you will not need a cash downpayment.
Could you explain how this would work a little more. I understand the concept, but not how it would be handled.

Quote:
Originally Posted by chet everett View Post
Closing costs might be pretty small -- $3,000 dollars or so. You and your friend would agree to a "price" that would pay off the mortgage and not leave any profit OR probably smarter would be to agree to a "price" that would leave enough proceeds from the new loan to do any renovations that are needed, though it sounds like that be leaving things tight on the appraisal and potential for PMI. If you do need to do some renovations then you should consider HELOC as well.
What would be the best thing? For my friend and I to go to a lender or broker together and lay out for them what we want?

Sorry. But I am becoming overwhelmed and I see all the options, but I may not have as much time as I would like. I am trying to avoid the option of having to sell the home to an investor in the event that I have to leave quickly. Even with the market as it is, I hate to leave equity that I worked for behind.
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Old 12-13-2008, 10:09 PM
 
9 posts, read 26,403 times
Reputation: 15
A couple years ago this situation might have been resolved by adding your name to the title, then you doing a refinance and taking the other party off the deed, note, and mortgage. People were abusing that process so now there needs to be a 'continuity of obligation' to do a refinance resulting in the need for it to be processed as a purchase.

The other owner could add you to the deed without a problem. They could even remove themselves from the deed, but the latter might create a problem for the lender who would of course make it your problem. The only way I have seen to 'transfer' a conventional mortgage is the owner puts the property in a trust and makes you the benificiary and trustee, then you notify the lender of the transaction and take over responsibility for the note. This is not a true transfer, however, because the note remains the ultimate responsibility of the original note holder and may not be ideal for your situation.

I agree with the approach laid out by Chet Everett. As mentioned already, the downpayment can be a gift of equity so there will be no out of pocket expense if the seller pays the closing costs from the proceeds of the transaction. You would draw up a standard purchase agreement with the market value as the price of the home but with an additional clause that the seller will gift an amount back to you that is roughly all the left over proceeds except for 3-4k depending on anticipated closing costs, and another clause that the seller will pay all settlement costs and fees. This is probably your simplest option for the seller to make a clean break. If the seller feels they own some of the equity, you would adjust the terms accordingly. If the appraisal comes back higher or lower than anticipated you can revise the contract to reflect the true market value.

I would advise NOT having the seller keep some of the money to give back to you for renovations. Not only would this be defrauding the lender and open the possibilty of more problems but it could have tax consequences on the seller.

I would also advise going to a few different brokers to compare closing costs and get a feel for if the answers to your questions are solid and make sense. This is a simple transaction and should not create any extra time, turmoil, or extra fees.

As far as owner occupied vs investor, you are commiting no fraud as long as you are telling the truth at the time you sign the papers at closing. If you do subsequently move out and rent the property, the lender could concievably call the loan and force you to refinance as investor but I have rarely heard of this happening. It has happened a lender will flag a property to send someone out to make sure the buyer is occupying the property but this is not a common occurance. If you have been living on the property all this time and all your documentation has that address then there should be nothing to arouse their suspicion unless there is someting about your pending potential departure that might come to the attention of the underwriter.

Last edited by processinghome; 12-13-2008 at 10:14 PM.. Reason: make correction
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