Advice on loans using a gift of equity on an investment property

2 Replies

Good evening everyone! I am looking for some advice on a loan using a gift of equity. Unfortunately my father's home will be going into foreclosure in 2 weeks and all attempted options for him to keep his house are no longer viable. My husband and I are interested in buying it as an investment property, as it is not an option to make it our permanent residence. The lender we have been speaking to said they can not give us a loan using a gift of equity if it is not our permanent residence. I have heard before that this is not a hard rule and can vary based on that specific lenders underwriting guidelines. Does anyone have any experience with this situation? Thank you so much! 

This can be done in a different manner.  If you have the deed, which conveys ownership, you can refinance.  

Or, you can get the deed, again conveying ownership, and cure the default (make up the back payments) and make payments on the original mortgage. The wording to search in the forums is “sub2” or buying “subject to the existing financing,” which can help protect your father from having a foreclosure on his credit.  This is not without risk that th lender can call the loan due, because of the change of ownership....however, the lender will more likely than not prefer a performing note to a foreclosure. 

Talk with a lawyer first. 

Originally posted by @Kerry Baird :

This can be done in a different manner.  If you have the deed, which conveys ownership, you can refinance.  “sub2” or buying “subject to the existing financing,” which can help protect your father from having a foreclosure on his credit.  This is not without risk that th lender can call the loan due,

Or, you can get the deed, again conveying ownership, and cure the default (make up the back payments) and make payments on the original mortgage. The wording to search in the forums is because of the change of ownership....however, the lender will more likely than not prefer a performing note to a foreclosure. 

Talk with a lawyer first. 

 I don't see that working. If you have the deed, which conveys ownership, you can refinance.....IF you can demonstrate the payments are being made on time with no 30's. No lender in business today is going to refinance a loan in foreclosure.

If you take the property subject to, yeah, you can cure the default. Sure. I'm not sure that's an option as the OP was looking for advice on getting a loan so, while possible, not probable that they have the funds to cure the default. Maybe they have it and just don't want to spend it. Who knows. Assuming somehow they get the money to cure, I wouldn't be so sure the lender wouldn't call the note due. It's not whether or not the note is performing that triggers the due on sale, it's the due on sale that matters.

I don't get why so many people assume that just because the loan is "performing", lenders won't call the note. It's NOT performing. Making payments is only one component of a performing loan. Taxes is a component. Insurance is a component. Use is a component. Maintenance is a component. All of these and more are components of a loans covenants that if/when breached, make the loan sub or non performing, and could trigger a default. Many lenders have investors that require them to breach the loan for the default. Not breaching the loan could trigger repurchase demands on the lender. There are WAY too many examples of the due on sale clause being executed on this board to think it won't happen to you.