Good evening BP,
On my drive home tonight I had this idea and wanted to run it by some brilliant minds to see if it can be done. I am trying to find finding for my next property and I realized my mom and sister both have homes in their names which are free and clear. Would it be possible to draw a HELOC from each of them?
Main issue is they don't really have income to qualify for any loans so I would need to use mine. Can I cosign and them actually get approved? Or option B, could I transfer the homes to my name and get approved? Would there be anything I need to worry about with these strategies?
EVerything you said is possible, however, in answer to your last question, "Would there be anything I need to worry about with these strategies?" ... the answer is yes.
I would never ask someone to put up money from their home (putting it at risk) unless they had a stake in the returns from that investment.
@Joe Thank you that is great. And I agree with you on the risk. My mom is my partner and will be able to benefit as well from opening up more funding options. Would the property have to be transferred to me in order to get a HELOC? As I mentioned she has basically no excess funds.
I don't know if it will matter. If she can't get the HELOC on her own, then maybe you would need to do the transfer. However, lenders usually want you to have been on title for longer than a month or two.
I'm not the one to ask though. Ask the lender.
If you have sufficient income to handle your personal loan commitments plus a new mortgage on your mother's/sister's home, then you can generally co-sign as a personal guarantee on their mortgage. Having a good credit score will help significantly there as well. It would be analogous to the more usual situation of a parent co-signing on the mortgage of their child who does not have sufficient income or credit score for a loan, but in combination of both parent(s) + child the loan gets approved. You are just doing that scenario in reverse regarding the generations. In these cases, you do not necessarily need to own the property, depending upon the lender.
You should determine what DTI ratios (Debt To Income) ratios your lender will allow. They generally have two DTI values. First is the amount of PITI (Principal, Interest, Taxes, and Insurance) mortgage payments(s) you would pay each month divided by your total monthly income (they generally prefer regular W-2 income with at least 2 years of experience in the same job or type of job). Second is all of your recurring monthly debt payments (PITI, auto loans, student loans, minimum credit card payments, etc.) divided by your monthly income.
So, as an example (specific numbers would come from your lender): a lender may allow a maximum 33% for the first DTI calculation and maximum 45% for the second DTI calculation, and they will require that you are within both ranges for both ratios. They will generally include your mother's and sister's income too (though you mentioned they don't have much/any) if there is any to add there. This can be helpful in easing the ratio requirement, so include any Social Security and other income payments they may receive.
Most large banks don't not allow non occupying co borrowers for stand alone HELOCs. You may want to try a smaller local bank, a portfolio lender, or you might be able to get other secured financing using the house as collateral (non mortgage loan).
You've got some options.
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