Help please, im not sure what best route moving forward is. (Sorry its a bit long)

Situation:

In September I took possession of my father in laws second house. The house was in poor condition. (He Was dropped from insurance company due to this & has the banks insurance now)

I knew I couldn't get conventional financing with it in this condition. I decided to pay his monthly mortgage payments and renovate the property, so I could use the equity appreciation in the buying process.

•He wants what he owes 46k

•Renovations and holding cost 15k. 98% complete (My personal $ invested)

• $800 montly payment ( $200 of it due to crazy overpriced insurance)

• ARV. $85k

My Mortgage broker Ran credit signed all documents and we agreed to structure it like this.

Loan $64,500 total

25% equity would be left in property

Interest rate 3.0% (Cost $1300 in points)

8k closing cost. Paid by seller thru his equity

10k cash back (gift from seller thru properties equity)

☆Over the last few days. This deal has fell apart.

He told me he cannot find a lender willing to do the deal with my funds all being a gift of equity. As far as the bank is concerned I have no money in the deal.

He said pre coronavirus this would be no problem but with no Evictions possible right now in NJ. The bank will not take the risk. And assumes if the renters stops paying that I will not make the payments.

Broker said id have to pay full 25% down payment and closing cost. Almost 30k Which I do not have.

I'm trying to finance it as an investment property due to I already live in a duplex that I house hack. Which I refinanced in March.

I'm ok with leaving my 16k in the property for now and now pulling any $ out. But I want to take advantage of this market now.

My father in law would keep it in his name as long as needed. And will help anyway that is not financial.

Father in law does not want to be responsible for claiming rental income on his taxes.

● WHAT ARE MY OPTIONS HERE?

Thank you for any help/suggestions.

Originally posted by @Orlando Hernandez :

In September I took possession of my father in laws second house. The house was in poor condition. (He Was dropped from insurance company due to this & has the banks insurance now)

I knew I couldn't get conventional financing with it in this condition. I decided to pay his monthly mortgage payments and renovate the property, so I could use the equity appreciation in the buying process.

•He wants what he owes 46k

•Renovations and holding cost 15k. 98% complete (My personal $ invested)

• $800 monthly payment ( $200 of it due to crazy overpriced insurance)

• ARV. $85k

My Mortgage broker Ran credit signed all documents and we agreed to structure it like this.

Loan $64,500 total

25% equity would be left in property

Interest rate 3.0% (Cost $1300 in points)

8k closing cost. Paid by seller thru his equity

10k cash back (gift from seller thru properties equity)

☆Over the last few days. This deal has fell apart.

He told me he cannot find a lender willing to do the deal with my funds all being a gift of equity. As far as the bank is concerned I have no money in the deal.

He said pre coronavirus this would be no problem but with no Evictions possible right now in NJ. The bank will not take the risk. And assumes if the renters stops paying that I will not make the payments.

Broker said id have to pay full 25% down payment and closing cost. Almost 30k Which I do not have.

I'm trying to finance it as an investment property due to I already live in a duplex that I house hack. Which I refinanced in March.

I'm ok with leaving my 16k in the property for now and now pulling any $ out. But I want to take advantage of this market now.

My father in law would keep it in his name as long as needed. And will help anyway that is not financial.

Father in law does not want to be responsible for claiming rental income on his taxes.

● WHAT ARE MY OPTIONS HERE?

1.  Absolutely the first thing you need to do is get on title.  Have your Dad do a quit claim deed TOMORROW.

2.  Get a tenant and a lease and have them make monthly rent payments with easily verifiable funds.   Checks, Venmo, whatever.  You must create a paper trail. If it's a 2nd home, have your father in law go home and not live there.

3.  You continue to make the mortgage payments using your verifiable funds.  Again, completely and easily verifiable funds.

4.  Complete ALL renovations.  

5.  Refinance after 6 months.

Here's where the problems are.  It's not a conventional or conforming loan because the title is a mess and calling a 2nd home is inaccurate if you're looking for rental income.  If it's a 2nd home, the rent doesn't work because rents for 2nd homes aren't allowable.  Subsequently, YOU have to make this YOUR rental.  Your father in law has to get off title because his occupancy is holding up your loan, especially if he can't get one.  I say your loan because you've effectively given your father in law $16,000 without recourse (and the only way, it seems, to have recourse is to take over the property correctly).

Coronavirus isn't the problem and neither is the bank.  The bank is right.  If your father in law stops making payments, you have no legal obligation to make them; even if your money is tied up.  You need to be on title.  The mortgage broker doesn't know how to structure the loan or if he did, the borrower isn't listening to how it has to be structured for success.  3% isn't realistic for this loan.  It's a portfolio loan all day long after 6 month's seasoning and the rate will end up, if you have good credit, in the mid 6's with a couple points on a 30 year fixed.  If you can get the value and loan amount up enough, the rate will go down into the mid 5's, but there are very few lender that will take a $64,000 loan on the portfolio side.

Feel free to PM me for further guidance.  I wish you luck and hope I wasn't too harsh.  It's just that these things can become messy if the right steps aren't taken to get title straight.

Stephanie

@Stephanie P. is spot on. 

@Stephanie P. is right on the money. Take that advice and implement it right away and you will be on your way to closing in 6 months.

Orlando,

I can't help with the Mortgage but I have a suggestion of a possible way to get out of the bank insurance.  Contact an Independent Insurance Agent (that represents multiple carriers and handle commercial insurance).  Explain the situation and see if they can write a Renovation Builders Risk policy to cover the existing building and the renovations you are putting in.  That policy may be able to deal with the condition of the house better than a standard Dwelling Fire policy because it is designed for a building under construction.  If you have trouble finding an agent that can handle that coverage PM me and I will let you know some of the companies we use in NJ.