Would like to pick your brain about my options

Question

Hello BP! I will give brief context and do my best to explain the current situation and my goals.

I bought a house with my then girlfriend in 2008 (worst time, I know!) when I was 22. We didn't know what was about to hit us and a year later the house was extremely underwater due to the subprime mortgage crisis. Shortly after that we broke up and I continued to live in house by working 60 hours a week, getting a tenant, and cutting spending; all while going to nursing school full time.

Fast forward a few years later, my ex moved back into the house and currently lives there with her children and husband. We have a great relationship with mutual respect. The house has not been formally appraised, but based on the data I've researched I can confidently predict it has accrued some equity.

We have discussed several times over the years them buying the house so I can get off the mortgage. The hurdle to this has always been their bad credit scores and debt to income ratio.

I am new to real estate investing and would like to explore my financing options with lenders in hopes of buying my first property next year. With that being said, the consensus with my initial conversations has been that I couldn't qualify for a new loan because of the aforementioned house.

What would you do in my situation? What creative strategies am I missing?

Thank you in advance for your knowledge and feedback!

Christian Banchs · Answer

Thank you for your reply. I'm pretty sure she would be willing to create and sign a lease showing that they have paid "rent" for the years they have been living there. I assumed this wasn't an option because banks would see this as my residence as our loan was not a conventional loan. How would you recommend talking to those community banks? Should I be as candid as I am in this forum about the situation? I don't want to risk misleading a lender and sour a potential relationship.

J. Mitchell Bernier · Answer

So without know much more than what you posted. If they can't buy the house from you due to their credit history and or income, get them to sign a long term lease for the same amount of the payment. Most community banks will see that lease and add the extra income to cover the debt payment. Allowing you to have a lower DTI. The lease will have to be for at least a year and you will probably have to show history of it being rented, but that is the simplest answer for your complex problem.

Good Luck!

Dennis Wayne · Answer

I can think of several ideas if it aren’t for your past but With her being on title it’s going to be pretty cut and dry on this . You’ll have to get her a new loan in place to get you out of the deal . She needs to get her credit right and restructure this . It’s kinda out of your hands in many ways

J. Mitchell Bernier · Answer

Absolutely, don't hide anything. I was once told by a great customer of mine, "You need to be as honest with your banker as you are with your lawyer." Just tell them that you ex was wanting to buy the house but she could not get financing, so she has been renting and show them a lease and most should be good with it. This is of course without knowing any other details regarding your finances. It would be even better if you could show where she has been paying you to live there, copies of checks, bank statements, etc. This is not required by it wouldn't hurt.

Christian Banchs · Answer

@Joshua D.

Thanks for your reply. We have discussed that option, and although it would be the best option, she doesn't want to sell.

Joshua D. · Answer

@Christian Banchs

Why not sell the house!?!  You don't want to own that anyways.

Have them move into a rental and split the proceeds with them and move forward. Then you got money to start your investing career and a clean break from a liability that pays you nothing...

I'm outa that thing. If they don't have money/credit to buy you out. How is that your problem. They can rent a house and will be just fine. People do it all the time.

Would like to pick your brain about my options

Most Popular Reply