2 names on deed , 1 on mortgage possible?
los angeles, CA · Member since 2009 · 223 posts · 4 votes
Im trying to buy a house with my boyfriend, I have a job and will qualify for the loan but i do not have enough downpayment. He will provide the rest of the down payment. We are doing it as a 50/50 deal.
1. I am getting a loan through the bank, if i am getting a mortgage under my name only... he wants to be on title.. will the banks allow his name to be on title even though he is not on the mortgage?
2. do i need to document anything else to show that this is a 50/50 deal meaning if we sell we will split the profit 50/50, what documents that we will split profits 50/50?
3. is the deed the only thing that needs 2 name or other things
Sarah Jones its "quit claim" not quick claim. A quit claim deed is a very weak form of deed. I think you're saying the loan officer is saying you should first buy the house in your name with the mortgage in your name. Then do a quit claim deed with you alone as the grantor and you and your boyfriend as grantee. Essentially, you are giving the house to you and your boyfriend.
This has bad idea written all over it. He's going to loan you part of the down payment, then you're going to get a loan. Are you going to tell the lender part of the down payment is borrowed? Are they OK with that? There will be a form the lender has you sign stating that no part of the down payment is borrowed. Since it is borrowed (he gets 50% of the profit if you sell) then it will be fraud if you don't disclose that. What if you and he split up? What if one of you wants to sell, possibly at a loss, and the other doesn't? What if one of you dies? What if one of you marries someone else?
4. loan officer suggest close the loan than do a quick claim deed, but if i do that than deed changes can they call the loan due? Is there anything else you guys would recommend to protect the 10% i am putting in
1. The bank will absolutely never allow two people to be on title and only one on the mortgage. If they did, their security instrument would only cover 50% of the property. Thus, if you defaulted on your note and the bank foreclosed they would only be able to foreclose on half of the property.
If you quick claim deed it to your wife... does that mean she own 50% of the property?
Sarah Jones its "quit claim" not quick claim. A quit claim deed is a very weak form of deed. I think you're saying the loan officer is saying you should first buy the house in your name with the mortgage in your name. Then do a quit claim deed with you alone as the grantor and you and your boyfriend as grantee. Essentially, you are giving the house to you and your boyfriend.
This has bad idea written all over it. He's going to loan you part of the down payment, then you're going to get a loan. Are you going to tell the lender part of the down payment is borrowed? Are they OK with that? There will be a form the lender has you sign stating that no part of the down payment is borrowed. Since it is borrowed (he gets 50% of the profit if you sell) then it will be fraud if you don't disclose that. What if you and he split up? What if one of you wants to sell, possibly at a loss, and the other doesn't? What if one of you dies? What if one of you marries someone else?
Nicholas, I am talking about the pre-origination status of title. In your case you conveyed the property subsequent to the loan origination. Thus, your wife took title subject to the mortgage deed. When you originally gave the mortgage you held the entire fee and could encumber the entire fee. If Sarah only has a 50% fee the bank will not loan against the property unless her boyfriend (assuming he is put on title prior to origination) also mortgages the property.
I believe William was implying that the loan won't be approved by the bank. I do see this happen at times after the loan has closed - it is a violation of the "due on sale" clause because "sale" is only one part of what the clause covers - it also covers transfer of any interest in the property, and deeding half to a spouse does just that.
If they call the loan due.. how long do they give you to come up with the financing? Do i have time to sell the house? If they call the loan due and you cant get a loan through the big banks what are your options? It shoulds like if they call the loan due ... you have 1 day to get the financing or they forclose .. how does the process work? Will i be able to sell it in time ?
I i get the loan on the property under my name... and the loan closes... can I later do a warranty deed to add my name and my boyfriends name... (he doesn't want to do a quit claim deed it isn't that strong like jon says..)
I do not recommend putting the boyfriend on the title at all. My ex-wife and I bought a home in 1987, then in 1998-Divorce. I was given control of the property with one stipulation, she got half of proceeds on sale and could force a sale with 120 day notice. I was able to refinace with my name only on the mortgage but this was a near disaster as she recently decided to force a sale. I have talked her out of it but it was close!
Thanks charles... I understand all the risk involved, but still want to go ahead with the deal. I just want to know the best way way to get it done... can we do a warranty deed after the loan closes since quit claim isnt too strong? and on what document does it say he gets 50 and i get 50% of profits?
Your boyfriend doesn't want a quit claim deed? I never understand people's logic on this point. He is willing to take title to the property subject to the mortgage but wants a warranty deed? The grantor in a warranty provides covenants such as the property being free and clear of encumbrances. Whoever is giving him advice isn't really seeing the big picture. A QCD should be fine and once he is properly advised should see why a WD doesn't really provide anymore security than a QCD.
Depending on the state, if you own a house together you may well be married. Why don't you just get married and this all gets much easier. You buy jointly. They will combine you incomes to qualify for the loan.
I was just listening to Mark J. Kohler's Blog Talk Radio recently, and he is a lawyer, where he was just saying more and more lawyers were avoiding the QCD and encouraging WD.
http://www.blogtalkradio.com/markjkohler/2012/07/10/hiring-sub-contractors-and-employees-dos-and-donts Go to the 33:00 minute mark for a case study of why.
Keith, thanks for the link. I listened to it while having my morning coffee. Here is my response to the host. In that case you have an individual owner quit claiming into a 100% owned LLC; thus they have the same interest and motivations because the LLC is really just an entity shell. In that case I can see why a WD is useful because the grantee is basically the original owner. There is no threat of a breach of a covenant because they breach would be prosecuted by your LLC against you individually and that wouldn't happen.
I guess my original post was not really attacking the merits of the WD v. the QCD it was more to let pro se grantors (like Sarah) see that you legally shouldn't just sign a WD at a notary's office and give it to your boyfriend for consideration where there are encumbrances on the title. The reason for that is because (as I noted above) you are making certain promises. Sarah arguably could be exposed to liability to her boyfriend for conveying via a WD and having encumbrances on the property. I would sleep better if I were her attorney and she signed a QCD.
It is kind of an academic issue but still an issue nonetheless. I am interested in the Nevada case he references and will see if I can find it later today. Seems like you have a hardline title company trying to squeeze an insured (like most insurance companies).
I talked to the closing agent .. and she said it would not be a QCD in california.. that is usually used to remove people .. she said she after the loan closes.. and the house is purchased we should wait a month.. after that we should do a grant deed.... what do you guys think?
Let's rewind for a moment. First a non-borrowing person can be on title. So the boyfriend can take title properly at closing at the same time Sara takes title and mortgage. There is no requirement for the boyfriend to be on the loan if Sara qualifies for the loan on her own. This is done everyday and is normal proper.
The boyfriend might have to sign the mortgage or some other documents but typically not the note or loan application. This is state specific and deals with perfecting the security instrument. Essentially, the boyfriend relinquishing all rights to the property. When a person with interest signs the security instrument but not the note or loan application they are considered non-borrowing.
That would be the correct way to close with the boyfriend and both he and Sara get Warranty or Special Warranty Deeds. This can be accomplished by informing the title agent or closing agent who's name will be on title. They will update the title commitment and send over to the lender. Additionally send it to your loan officer.
Some loan officers are not too keen on this and Quit Claim Deeds were used to bridge gaps of skill and knowledge in the boom. Certainly not proper but likely does not constitute fraud. Generally speaking a lender would not be too worried about a QCD down stream in title like this as it does not effect their superiority in title. Consecutive events are inferior in nature with some exceptions such as RE taxes and IRS, etc. The loan officer can look these provisions up in underwriting guidelines if he/she is not familiar with them.
During the underwriting process of the loan, the lender is going to seek source and seasoning of the funds used to close and for any down payment. Not clear from the post if this has come up yet but it will. So if the boyfriend gave funds to be used to close the loan the lender will get to the bottom of that. A gift letter will be required to be executed. The gift letter does not exclude the boyfriend from having nor paying for an interest in the property.
Having an agreement in place on what to do in the future in the case of a split or death or alike is not a fraud on the lender in this situation. It is just a little estate planning and is a good idea. Draft a contract between the boyfriend and Sara have it signed and notarized and each of you retain a copy. Ensure you cover the good with the bad. If you liquidate the property and there is a gain, how does that split and if there is a balance due how does that get paid. You can cover several major situations and divert any other situations to mediation or similar. Then you are both covered.
Hope that helps and congrats on home ownership.
This is a good point. I believe the funds will need to be seasoned for 60 days or if you do a gift you may have to pay taxes on it. I believe the maximum gift amount is $13K but you would need to confirm with a tax lawyer.
Justin S. (first not a tax guy) we do not know how much money the OP is getting. There is a $12k limit before you have to file as a giver. Money can be gifted to and from parties and filed properly minimizing tax implications. I think it is a million dollars per lifetime.
I don't think this really falls into this tax situation. The Gift here is from the boyfriend who will have an interest in the property which is an important point.
The Gift Letter concept from a bank perspective is to eliminate any potential senior interest in the real property. That would be any loan that takes place prior to the mortgage or deed of trust being executed or an unknown non-borrower. The gift letter eradicates any potential senior interest in the property beside the lender and the borrowers, that is known any way.
With the boyfriend on title he has an interest but he subordinates his interest to the mortgagee just like the borrower. At year end they will have a couple of payments and the home to split on each of their separate taxes. Which might even make it more important to ensure the deal close properly with the boyfriend on title. Good point none the less and Sara should consult with a tax professional about it all.
Sarah Jones
1. No Due on Sale would not be an issue since your boyfriend would be vested on title.
2. I think you are implying if you turn this house into a rental property how will that work. If he receives income from the property he would report the income on his tax return. That income would be net of property expenses and debt service. If you choose to split it some other way besides 50/50 that is fine. He has to report, just like you, what you received as a dollar figure not a percent. How it is split as a percent is just how you guys calculate what check to write to each other. When you get to this point talk with a tax person, there are some other details which you will want to plan for which is a bit more than the scope of this thread.
3. This too is a little bit of a loaded question. In order to use rental income in your DTI ratio, he will have to have been collecting rental income for 2 years or more. That is the standard underwriting guide. As an owner he has an interest in the property, that is the standard not the mortgage. A mortgage is not ownership in real property it is a pledge of the real property to pay back a debt; ownership is expressed through title and deed. The fact there is debt against the property does not work like you are thinking. The mortgage payment will be net out of the property cash flow regardless of him being a borrower or not. Investment properties are underwritten at 75% of gross rents to account for vacancy loss and other expense excluding taxes and insurance. So if you collect $1,200 annually the gross rent is dropped to $900 which they will take taxes and insurance actual costs out of and the balance. That would be what can potentially be used as rental income. If he is only receiving half of that number, that is all they will use which will also have to be supported by his tax returns.
Because you folks are not filing joint tax returns you will want to chat with a tax person to get a better understanding of the impact and best structure for each of you and collectively. I am not a tax guy. The tax guy will give you direction on how to structure payments to take advantage of any interest deductions for mortgage payments. Additionally, you can ask him about structure when you turn the home into a rental. He may suggest you vest the property into a LLC which is a whole other topic. Additionally, who knows you also might be married (if that is your goal) and then it is a joint asset through marriage which would also change the picture for both of you.
I just happen to stumble upon this old post. My comment is for anyone new reading this. Dion DePaoli was correct in stating that it is best to be put on title as a non-borrower at the table. You should check with your title & escrow company and make sure that they are aware that this is what you want to do so that the title commitment/binder reads correctly. This also alerts the lender and you will need to sign a few documents. The only additional thing that I would add, is that in some states, it is important that the deed state tenancy AND survivorship. For example in Virginia, even if you are married and the tenancy states "Tenants by the Enitirety" there is case law that states if you did not also say "with common law right of survivorship" - there is no right of survivorship. (**This may not be the case in every state.) My point is - make sure you also communicate to your title company, especially if you are not married, if you want survivorship or just joint tenancy and have it clearly stated on the deed. It will save the surviving party alot of headache if you were to die.
Deirdre Brown, would you have a link or the name of the cases regarding the tenants by the entirety not automatically also having the right of survivorship in Virginia? I would like to check out these cases, but can't find any reference to any that say tenants by entirety doesn't have right of survivorship without that other phrase. Virginia code says, "An intent that the part of the one dying should belong to the other shall be manifest from a designation of a husband and wife as "tenants by the entireties" or "tenants by the entirety."
Also, just to add to original poster's questions, I would think it would be extremely dangerous to have only my name on the mortgage but a boyfriend on the title, even with a separate document dividing the asset. He gets title to the asset with no obligation to repay the mortgage, while I'd have all the responsibility to pay back the mortgage. Plus, if there is a break-up, how do you sell if he wants to be difficult? After all, he's got nothing to lose except his part of the down payment. He might want to hold off for more money or wait until it appreciates, and you're stuck paying the mortgage. Not many people out there willing to buy just your share of the property, so you're having to force a sale? What if he does sell his share to someone else or borrows money against his share of the property, creating a second lien & tying up your profit? Just seems too clouded for me.
In response to Lynn M.:
I am very familiar with the Virginia code, in particular section 55 that you quoted. I will not link to or quote caselaw. Your exception to my comment is noted.
The spirit of my posting was simply to say that if you want to ensure that there is survivorship rights conveyed when you die, you should have the express language on your deed. Just my 2 cents worth - take it for what it may or may not be worth.
Deirdre Brown, I wasn't taking exception to your post. I was asking if you would help make it easier in my researching this as I thought your post is very relevant to me as that is how we've taken title to several properties in Virginia (some years ago so probably don't have that other wording), and I would be devastated if one of us passes and the other finds out they don't just have right of survivorship automatically as they told us. I will check my deeds the next time I am in Virginia (don't keep them here with me.) You are the one that said there is case law, so it was just a polite request for if you know the cases. I quoted the code as that is the best relevant info I could find online and the reason for my confusion so you would know why I was asking. Sorry if you took it any other way, especially personally as it wasn't, but I thought these forums were to help educate us and make us all better investors, and also better protected investors from knowing these little loopholes that can potentially snag us, but I would be better protected if I knew the actual facts, the case law that makes the code unclear, to see if it is relevant in my situation and determine if I have to go hire a lawyer to help protect us with our properties that we bought years ago or not worry about it. I'll continue to research on my own to find the case law you speak of, just thought it would be easier if you already knew it.
Thank you, @Sarah Jones, for starting this thread, and thanks to all of you who have responded! I just found this thread and joined Bigger Pockets because of it. My partner Tim and I would like to co-invest in residences with our three adult children. That is, we would invest a big chunk of money for their down payments so they could each buy a better home than they could otherwise afford. But this would ideally not be a gift--it would be an investment, and we would own a percentage of the house. We would draw up a contract such that within ten years, the home would either be sold or they would buy us out. We run the risk of the value of the home going up or down, even foreclosed upon, but we are willing to run this risk as long as the contract is clear.
So we would like to be co-owners without being on the mortgage. We are aware that rules vary by state, and in our case, several states are involved (kids live in different places), so we'll need to look into that.
From this thread I gather than @Nicholas Quinn has done this several times, but only with his wife, and that may be a special case.
If I understood correctly, @Dion DePaoli says you can sign the mortgage but not the note or the loan application, which is a distinction I was not aware of. Dion also suggests gifting the money ahead of time and then quit-claiming after closing, and that this doesn't affect the superiority of the mortgagor.
@Deirdre Brown says it's best to be put on the title as a non-borrower at the table, and that sounds ideal to us. We're not trying to do an end run around the lender.
So, some questions:
1) @Deirdre Brown (or anyone else), can you give more details on how to be put on the title as a non-borrower at the table?
2) @Dion DePaoli (or anyone else), can you explain more fully the idea of signing a mortgage but not the note or loan application?
3) Are there other websites that describe this approach to helping one's adult children buy better homes without gifting the money indefinitely? I can't imagine we're the only people who came up with this bright idea.
4) If the only way to accomplish our goals is to gift the money ahead of time and then do something after closing to define our ownership of the property, is it better to be quit-claimed onto the title or just write a contract defining our ownership? (I think I know the answer to that one but thought I'd ask just in case, since someone on this thread mentioned a contract.)
Thanks in advance for your responses!