Re: How to do this? - Posted by JPiper
Posted by JPiper on May 11, 1999 at 12:07:15:
The answer to your question is yes. If you sell the property to your son for $170K, with him getting a new loan of $86K and you carrying a second for the balance, the lender will consider BOTH loans for the purpose of qualifying.
You don’t say what you’re attempting to accomplish here. But one thing I personally wouldn’t be attempting to accomplish is to get my son into a leveraged situation that he can’t pay for. That’s the whole purpose of income qualification by a lender?.and something I think you should evaluate yourself to avoid problems with your son further down the road.
Having said all this, IF your point here is to essentially help your son, AND you’re not particularly concerned with your own financial goals here, Sean has a good idea below. His idea involves you further encumbering the property. This works if the lender is OK with the property ($50K is a lot of rehab) and if YOU are OK with going into further debt and if YOU are able to qualify for a larger loan.
You could sell for $170K, with your son getting a new first mortgage of $86K and you carrying the balance of $84K at say 7% interest for 30 years (perhaps with a balloon at which time your son would need to refinance). Payments on the first might approximate $601 PI. Payments on the second would approximate $558?.a total of $1159. Add taxes and insurance to this. If your goal here is to basically make a gift, you could create an interest only loan which at 7% interest would create a payment of about $490. Then you could forgive $20K of the principal each year.
To avoid qualification, you could deed all or part of the house to your son. This issue is mentioned in the Garn St Germain act. It’s clear that at least deeding a part of the house to your son does NOT trigger the due on sale clause. Whether deeding all of the property to your son does is not exactly clear to me?.but it may not. Have your attorney take a look at the Garn Act if you’re interested. The problem with this is that you still are liable for the loan?.although if you’re carrying a second you have the right to foreclose if your son doesn’t make the payments to take the house back. Understand that I have seen MANY situations where parents have tried to help children in obtaining loans, only to have the children treat the parents credit with irresponsibility. IF you do this particular one, I would personally have your son pay you, and then you pay the bank. Understand that YOU are still responsible for the loan.
To get the other $30K, you could agree to subordinate your second to a new second to be obtained by your son. You could do this with either of the two scenarios above. Understand that this would make your note a third?.and therefore LESS secure.