Strange FHA Loan Eligibilty Question

9 Replies

Hello everyone,

I cannot seem to find the answer to my question through research, although I may have gotten a bit lazy in my search knowing the knowledgeable people of BP might have the answer. Here's my situation:

In 2011 my grandmother purchased a property for me. I was 19 at the time and, despite having a decent job, imagined I would have been laughed out of any bank. So, the property is under her name. I had been paying the mortgage while rehabbing the property and later moved in. Eventually I decided it would be best to rent the property. Mortgage, tax, and insurance come in at $840 while the rent checks are flowing at $1,700. The problem is that the checks are in her name. Which brings me to my question.

I would like to file a quitclaim deed in order to be able to report this income under my name. I will make more money on paper and will have my landlord experience recorded. I imagine this will make my next purchase easier, especially due to the apparent income boost. But... will doing this disqualify me from receiving an FHA loan on my next (but technically first) purchase? Why or why not? Is there a better way to approach this?

I know this doesn't answer your issue and I would simply call a mortgage lender and ask the question but recording a quit claim doesn't transfer the mortgage responsibility from your grandmother.  

You don't say whether your name is on the deed as well as your grandmother.  A quit claim is not a grant deed.  It doesn't give you title it only releases her interest in title.

So unless your name is on the original title with her it doesn't give you legal title.  And just as important the lender may not exactly do cart wheels over their borrower quit claiming her interest.  I believe this is correct but I could be wrong.  Someone will know on BP.

@Daniel B. You can still get an FHA mortgage in your name. Are you thinking of refinancing the property into your name as well?

I would speak to a mortgage broker.

That being said, as far as I have heard, FHA can only be used once itself. That being said it has nothing to do with the number of properties. For example we have 5 mortgages, as far as I have heard we could get a fha for our 6th. That being said, I haven't looked to in detail so definitely talk to a mortgage broker before you do anything.

Originally posted by @Martin Scherer :

I know this doesn't answer your issue and I would simply call a mortgage lender and ask the question but recording a quit claim doesn't transfer the mortgage responsibility from your grandmother.  

You don't say whether your name is on the deed as well as your grandmother.  A quit claim is not a grant deed.  It doesn't give you title it only releases her interest in title.

So unless your name is on the original title with her it doesn't give you legal title.  And just as important the lender may not exactly do cart wheels over their borrower quit claiming her interest.  I believe this is correct but I could be wrong.  Someone will know on BP.

 It is my understanding that the quitclaim deed does transfer the interest. However, she will be transferring it from herself to me AND herself. This is solely for the purpose of legally being able to collect the rent checks in my name and report them as my income. She retains interest in the property this way, I'm just being added on. 

you could lease the building from her at $840 mortgage payment and sub lease the building to the tenant .This would show as income but as mentioned the mortgage would not be attached to you 

Originally posted by @Jerry Padilla :

@Daniel B. You can still get an FHA mortgage in your name. Are you thinking of refinancing the property into your name as well?

 Since the quitclaim will be a transfer from herself to me and herself, I did not think about refinancing into my name. I assume this would hurt my goal of buying another property soon by adding debt to my name.

I would be a little tempted if I could cash out because I owe $88K on the property and comps are now over $200K.

@Daniel B.  

You can quitclaim and cash out refinance after 6 months of being on title.

@Daniel B.  

Here is my point from an online source

If you're thinking about using a quitclaim deed to transfer the title to your home to another individual or group of individuals, you'll need to keep several things in mind. First, quitclaim deeds transfer ownership rights and interests. When you use a quitclaim deed to transfer such rights and interests, the recipient will receive all of your equity in the home. However, the quitclaim will not transfer the "mortgaged" portion of the home's equity. In other words, your mortgage lender will still own a sizable interest in your home.

What's more, most mortgage contracts stipulate that a home can't be transferred via quitclaim while its mortgage lien remains in force. In fact, virtually all mortgage contracts require existing mortgage obligations to be paid in full before the quitclaim's consummation

I think part of your question revolves around qualifying for an FHA, due to already have a property, and/or a mortgage, in your name. Neither one matters....as long as you plan to occupy the next house you can get an FHA loan, regardless of how many other properties you own, as long as you qualify with your income/debts.

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