is this lender too conservative?

4 Replies

my mothered transferred the deed from her primary residence to my two brothers and myself.  the note is being paid for by my mother.  my brothers and myself are not on the loan...just the title.  

my one brother is in the process of purchasing a home and his lender told him to have his named removed from the deed to my mothers house.  event hough he is not on the note, he is on the hook for the real estate taxes and insurance, which i believe throws off his ratios.  funny thing is he is on the hook for all of the real estate taxes and all the insurance, which im guessing my other brother and myself would be as well?!? in a lenders eyes, if something were to happen to two of us three, the third one would be responsible for covering all the taxes and insurance.  

is this the norm with lenders?  do lenders normally do a search to see if the applicant has their name on a deed in some county record book?  

another unrelated but somewhat related question... if i own three rental properties free and clear and decide at some point i want to move from my primary residence across town to a different house, would the above situation (taxes/insurance be used as debt to effect my ratios) be avoided if my rental properties were in the name of an LLC and not my personal name?

Many/most lenders do this type of search. It is no different than if you are cosigned on a loan, even if the other borrower(s) have always made the payment, you could end up being on the hook for the entire payment. Some banks (think portfolio lenders) may decide they won't apply those payments to your DTI. You may want to talk to a well connected mortgage broker as they should know the answers you need.

@Joe Boggin  Lenders do look into other properties a borrower is associated with and depending on the association, the property would be included in DTI.

Does your brother claim your mothers home as his primary residence currently? You are either an owner, renting or staying with parents for free. Given that he is on the title, then the free part goes away. The more likely scenario is that your brother disclosed it as an "asset" on the loan application. Now that it is out, he can't put it back in with this lender. He can speak with other bankers with the details of his situation to determine if it would be treated differently.

In your scenario of moving residences, Yes, the currently residence will be counted on your DTI. Moving it to an LLC will not help, as you are still the guarantor. You can refi it as a commercial loan, but those terms/rates are not as good.

If you are on the title, then you are responsible for the loan, taxes, insurance, and the rest, even if you are not on the loan. That does not mean that it would be on your DTI when you get a new mortgage loan. Its all about association.

Hope this helps. Feel free to PM if you have more questions or simply would like to chat about RE.

Upen Patel

Wow, never heard of this. I often mention that I have partnership properties but I don't want to consider them in the consideration of my loan and they just disregard them so long as I don't have any loans. Even my other properties, I might have one or 2 held for rehab with on rental income and they have never included taxes and ins. Only for properties that I show rental income for will they take a portion of the rent for taxes and ins. 

If you're on the deed to a property you may not be obligated to mortgage payments, but you're responsible for the taxes and holding insurance (sometimes) on it.  The lender should definitely ask for those 2 items to be included in your debt to income ratio, but they can't tell you to be removed from the deed.  

My guess is that the taxes/insurance may make your ratios too high, which is why they are telling you to do that.

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