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Hi, I'm a new member but I've been lurking for a couple months and just closed on a house. This forum has helped me a lot with learning about the home buying process.
My mother and stepfather are eyeing a foreclosed property in their town. The property is listed for $50,000. My parents have $15,000 for a down payment. I have offered to front the remainder so they can pay cash for the property. My mother is very responsible with finances and has excellent credit but a fairly low income. Her plan is to fix up the house enough so she can open a HELOC against the value of the property and pay me back out of that.
Does this plan sound viable? I know she'll pay me back either way, but it would be nice to get the money back sooner rather than later. I don't need the cash (we have plenty to live on) but I admit it that the thought of having $35K of "my" money floating around out there does make me a little nervous. I would like to get opinions on this "plan" and whether it's realistic or not, any pitfalls I should be aware of, the time frame for the loan we might be looking at, etc.
ETA: I should mention that they have a RE agent and have already formally expressed interest in the property and made an initial offer (which was a lowball and rejected).
If they intend to pull out a heloc, why aren't they just getting a mortgage from the start?
In my opinion, it's a bad idea to lend money to friends or family members, it could potentially change your relationship if things don't go as planned. Are you prepared to lose that money if they lose a job and can't pay you back? What if she is unable to get the HELOC? It would be a better idea to gift them a smaller portion of money so that they are able to qualify for the mortgage.
If they intend to pull out a heloc, why aren't they just getting a mortgage from the start?
I would ask the same question. If she can afford to make payments on a home equity loan, then she can afford to make mortgage payments - right?
If they have $15,000 to put down, that's 30% on a $50,000 house - which is a good size down payment.
The only problem I can see is finding a bank willing to make such a small home loan. They might have to do a lot of research to find someone willing to loan that small of an amount.
Thanks for the replies. Yeah, I'm fully aware of the dangers of loaning money to family/friends and I actually agree with what you're saying. Hence why it makes me nervous. My mother would have to come down with a serious case of personality reversal to not do everything she can to repay me, but yes--it's obviously not impossible that she lost her job and couldn't do so.
The small amount of the loan is the issue. My stepfather qualifies for a VA loan, but it seems that the bank has a preference for an all cash offer. My parents just put in another higher offer with the $15K down payment. The real estate agent has advised them that if the bank doesn't accept this offer and they can't come up with the rest of the cash, to just wait and see if the listing price comes down. Not sure how that would benefit them though since then the bank would be even less willing to give out a loan. They do have 401k's they could dip into, but don't want to do that for obvious reasons.
I don't know, I would really like to help them out even though intellectually I can see the dangers. I guess I need to decide one way or the other whether I want to risk losing that much money and was hoping someone here could offer suggestions or opinions that would help me. I have considerably more than I am loaning them in savings, but still, it's a large chunk of money.
Have you considered yourself purchasing the property and have your parents rent it from you?
Yes, that's one option I'm considering bringing up with them. They could "rent to own" as it were. Or, having my name on there as co-owner so at least I could take over the property if something unexpected happened and they became flat broke. They're supposed to talk to their agent today so I'll see what the status of everything is and then maybe lay those options on the table.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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If you do loan your parents money to purchase the house, you should have your loan recorded just as if the money came from a bank. That way it's not really a personal loan. I think what you propose is an excellent idea as most banks prefer a cash sale to a loan and you'll have a better chance of buying at the right price.
The way lenders are looking at property these days, your parents might find themselves a long way down the road when the lender decides to not fund it for some reason.
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