Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
A couple of years ago we bought a property sub2 from a seller. Since we have been making timely payments on the seller’s behalf it has increased his credit score to the point that he wants to buy another house and he is back on his feet without a foreclosure. ;) Whereas the two loan officers that he talked with does not know how to document the sub2 sell in such a way that it is not showing negative on his Debt to income ratio I’m looking for referrals. :)
@Account Closed I understand the concenpt, its called seller financing to an extent. My question is why are the lenders still considering it in his DTI. When will it be removed from his name? If the home is in the sellers name still and will remain till its paid off then no it will not be exluded from his DTI. I am wondering why you might think that it would? Because someone else is making the payments?
I am kind of intersted in what you mean that the loan orfficers do not know how to document to sub2sell. Is the home still in his name and still on his credit report?
@Nicholas Covington buying a house sub2 is where the loan stays in the name of the seller until it is refinanced or payed off with normal payments on the underlying loan.
@Account Closed I understand the concenpt, its called seller financing to an extent. My question is why are the lenders still considering it in his DTI. When will it be removed from his name? If the home is in the sellers name still and will remain till its paid off then no it will not be exluded from his DTI. I am wondering why you might think that it would? Because someone else is making the payments?
@Nicholas Covington@Joel Owens question is legitimate. There are A FEW lenders will use the new owner's payments (given a certain history of payments) to off-set the debt so that it doesn't have an adverse affect on the DTI of the original owner.
Don't know off the top of my head but I have a couple contacts who know--I'll try get you something soon if no one else jumps in with one.
@Jeremy VanDelinder thanks for the hopefull comment. I heard that there were lenders/mortgage brokers that knew how to package the docs in such a way that it would work.
@Nicholas Covington the home is NOT in the seller’s name, but the original loan that they signed when they purchased the home.
It was in the sellers best interest to sell it this way due to them being on a short time frame and they already tried listing it with a realtor with no takers. The reason I mentioned this is I’m trying to avoid a debate with further readers on the pros and cons of this kind of transaction. The fact that the sellers credit was improved is a pro.
@Account Closed I have no doubt that it was in the sellers best interest as this time of thing happens all the time but it doesn't set someone up for sucess when they are trying to get convetional finanince. It does't work that like. If the mortgage is still in his name and on his credit report, then its going to be counted in his debt. Point blank period.
If he was renting the home out and possibly claimed the rental income on his tax returns for the last 1-2 years then that could possibly be used to offset the mortgage debt. But other than that I don't see a way around it until someone buys the home from him completly.
The main part is categorizing the income that is being recieved. You might be able to consider it border income, but if that isn't his primary residence I am not sure how far that will go. Other wise you could possibly consider it rental income.
@Jeremy VanDelinder I did not state that the question wasn't legitimate, I just wanted more clarification. As a mortgage broker myself that deals with alot of one off situations there is always more to the story. Normally to offset payment you need to show 12 months of history of someone else paying it BUT that normally comes with them being a co-signer on the loan.
I would be very glad to know another way by all means.
Very interested in the outcome! A Subject To arrangement can be a great way to acquire properties while helping distressed Sellers but I thought that the Sellers were stuck until the Buyer satisfied their loan; by either refinancing, selling etc... It would be wonderful if there's a work around!
@Account Closed went a meetup on this topic in PA. If there were 12 on time payments the loan underwriters would take the loan out of the DTI. Don't know about Texas.
I'm being told it's a matter of explaining it to the lender and most will remove it from the DTI if there is a 12-month record of on-time payment (treating it like an owner-financed sale or rental). Here is an attorney who does a lot of sub-to closings. He isn't a lender but he may have a recommendation: http://www.bowielawoffice.com/wp/about-us/
What your saying is what heard as well. Finding a loan offer / Mortgage broker that can correctly document it in such a way that it doesn’t get squashed by underwriting is the key.
@Joel S. I have an idea on how to get this to work. Does the owner claim the payments on his taxes? I am a loan officer in Dallas. I am going to confirm my idea will work. And/or let you know my findings.
We should be able to use a back dated lease agreement to offset the DTI.
If you wanted to just purchase the home from the seller, you could apply any deposit you gave when moving in, and anything paid over current market rent to your down payment. We can go as low as 500 credit score.
If the seller qualifies for a conventional loan we would just need the backdated lease agreement.
Happy to help you want to send message to discuss further? Happy to help.
We should be able to use a back dated lease agreement to offset the DTI.
If you wanted to just purchase the home from the seller, you could apply any deposit you gave when moving in, and anything paid over current market rent to your down payment. We can go as low as 500 credit score.
If the seller qualifies for a conventional loan we would just need the backdated lease agreement.