Great foreclosure deal in grandkids school area that my daughter & new son-in-law would make very good use of. But they can't use their credit as they both have child custody cases on going. My daughter's ex is tens of thousands of dollars behind and will never make it up. I have good credit and am in on the deal as a co-borrower. I have good credit but the debt-to-income ratio is high. Just need another strong borrower but can anyone give me some ideas how to structure a win-win for a co-borrower co-investor. How do we find this investor?
Need to keep it FHA so we have 3.5% down pmt. only. Home is worth $90,000 more than we buy it for if it is put into top notch condition which would cost about $15,000. Payment with mortgage insurance is same as they are paying in rent where they are at now.
The loan officer said we need another "stong co-borrower". Her words. The daughter and son-in-law will not be strong enough borrowers.
The loan officer considered me a strong borrower, loosly speaking I'm sure, as I have rentals, notes, and guaranteed income. A substantial note I made recently involved some borrowing on my part. Unfortunately, the note will not begin paying off for a little while. Hence, higher debt-to-income ratio. It is going to pay well but was before this deal arose. Maybe just the fact that my debt-to-income ratio is temporarily high defines me as a weak borrower, well then I will just have to live with that. You answered with a question Steve B. so I am not absolutely sure what you are intending to say. Again it is a matter of word definition I suppose.
The lender has its debt-to-income requirements that I can't meet at this time but my credit is flawless otherwise. I realize I did a poor job of giving you the proper perspective and I apologize. I suspect you are saying I must be a weak borrower but it is a little hard to read between the lines.
As to who is going to be stuck making payments, could you fill me in on that, if you know how that works? I haven't co-borrowed with anyone before so I don't know the answer. If the bank goes after the borrower with the most first then that would likely be me as I have 5 income producing leases, income producing notes as well as guaranteed income. In 3 months this would not be a rejection but the deal we want is now and not in 3 months from now although we probably will find something good in the future as well. It is not the end of the world for me but it is a lot of disappointment for my daughter.
Should I read into your statement Steve B. that l am asking too much of someone to invest in this deal?
I do appreciate your reply as it gives me some perspective that is much needed. Thanks.
Wait!
I know that is not what you wanted to read, but that is an answer. If everyone waits, all parties will become "better" borrowers. Also, they can save up money and come to the table with more of a down payment.
I don't see how there is anything here for an investor, since their lien position would be subordinate. The need for a co-signer or co-borrower is to make the lender happy; they want to be sure that they are going to be repaid, and apparently they don't believe it can happen with the borrowers that are on the application.
All co-signers and co-borrowers will be pursued equally within the legal system to collect on any debt that has gone unpaid. All of them will be on the hook for the full amount due as well; it does not get divided up in percentages based on who can afford what.
Maybe you need to examine a different approach, say posting other property as additional collateral, or assigning rents from other income producing property (if free and clear).
I don't think you're asking for an actual investor. Rather, you're looking for someone to co-sign the loan. That person is 100% obligated to pay the entire loan amount. So, what's in it for them? They "lend" you (your daughter and hubby, actually) their good credit. Moms and dads might be willing to do that, but a random stranger is going to have to be well compensated for the risk.
The reality is your daughter is trying to buy a property for which she does not qualify. James has the right answer. She needs to look for a different (cheaper) property that she can qualify for now, save more money, improve her credit, improve her DTI, or some combination.
These are great answers. I would think the loan officer would have asked me if one of my properties could be used as collateral if that was allowed under FHA first time home buyer.
Since I first posted I have found out that the co-borrower has to be related to us to help us qualify for FHA first time home buyer.
So that means coming up with 20% down payment and I assume going conventional.
I would make this arrangement an investment for a co-borrower. We should be able to create $70,000 to $80,000 equity on this rehab. At a specified date we would buy the co-borrower out. Just thinking out loud.
That's why we didn't want to wait although waiting is an excellent answer.
Again, I don't think assigning rents is a method FHA accepts but maybe so. Again, I think the loan officer would have brought it up.
Again, Jon has helped out with a great answer and again I wasn't explicit enough. It is the creation of equity along with right house in the right location at the right price for a very good deal that makes us think that another deal quite like this won't appear again at the time we are ready. I would not have continued to pursue this if I didn't think it was the only chance we will get at a deal quite like this.
Thanks for posting
I have seen way too many parents get in trouble from co-signing for the kids, what do you do if there is a divorce? Stuff happens in life.
Why don't you buy it and use them as a tenant, you have a track record as a landlord, the have a lease history. Bill
That's a great rundown Jon. I always expected to be on the deed and follow up on payments. If they did not pay on time or did not pay that would trigger the next step which would be to sell the property and recover the equity.
But your discussion about affecting my credit score and my ability to borrow I know but had not really thought out how important that is to me and could change my mind about pursuing this house.
I understand what you are saying about the 70% rule but also factor in that the home is in the right location at the right time(low interest rates), and they can live in it with no great fix up expense for years if they want. It is in pretty good condition. Most foreclosures I have viewed are pretty rough and need immediate repair. And factor in FHA and then do you still go by the 70% rule? Got to consider the other points which are in fact as important as your points. The criteria is a little different for determining a great deal.
Bill, I don't think this is cosigning exactly as I have an equity interest and a co-borrower would get an equity interest. If my daughter didn't follow through there would be consequences and I would still make out well. At least that is my plan at this point. Whether it is executable remains to be seen.
Yes I will try to buy it outright and have them rent but I was at first trying to preserve their ability to get started on their own with low down payment, low interest rate, and create equity for them.
If I buy it myself the interest rates for investors are higher and I will have to pay a 20% down payment along with put out some money for minor fix up. That's ok but I wanted them to get started on the responsibility of homeownership. I think they are ready.
I think it is time for me to go after it on my own as you say. The forum has been helpful with lots of useful discussion. Thanks to everyone who participated.
ecycletrike
Maybe, if this house is a really good deal, you could find an investor to buy it outright, and then rent it to your kids with a option to buy in 2-3 years.
That gives the kids time to clean up their credit and raise a down payment. Of course, there will be a markup on the price, but still a below market price locked in.
Hmmm.... I can't see the banks caring about custody cases. But they do care about child support. So is the new son-in-law behind in his child support? If so, there are 2 deadbeat dads messing up the new mortgage.