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Does this sound like a good idea? Home purchase related.

I

ivol07

Golden Member
Okay, so the situation is my Grandparents (who pretty much brought me up) are having some financial problems. They have a house in Monterey Park that they were wanting to refi. They have VERY bad credit and are not able to really get any help in this area. They only get quoted very high rates. They still owe about $140k on the house. Two loans, all I know is the rate on the second is 13% for $19k. The first I believe is about 7-8%. They would want to get about $40k-$50k out of the loan.

So yesterday I was talking to my Grandfather and he was asking if I would be up for co-signing his loan so they could get a better rate. His kids, my mother and uncles, aren't very reliable and he says I'm pretty much the only one who he can trust to help him out. Which is true. But I'm not going to throw my credit down the drain either. So after discusssing some things I decided that it would be better if I straight out bought the house from them for $200k and then everything is under my name, I'd get a good rate, and they pay me rent every month. I would actually add myself to their bank account and deduct the rent every month. One of their problems is they are getting older and can't really take care of their bills to well anymore. Writing checks out twice and stuff like that. So it would just be better if I take care of that for them. His retirement and their social security is about $2700 a month.

The only thing is that my wife is not to thrilled about this proposition. She is worried about if they miss a payment to us, or if the house needs work. The house is not in bad shape. I would say it would only need about $9k worth of work to get it looking great. The houses in the surrounding area, meaning the same street, recently sold for around $350k. She is also worried about when we are going to buy a house for ourselves that we won't get approved for the loan because we will have this property under our names. I don't really want to declare this house as a rental property because I figure it would just be less hassle not to. But if we're trying to get a loan for us and they see another loan for "us" then we won't get approved. But I wasn't planning on getting a house for at least a few years anyway. But her answer is "Well what if we find something sooner".


So the way I see it is I'm getting a house for a very good price and helping my grandparents out at the same time. Does anyone have any experience in this area that could lend me some advice? I see this as only positive. But she is worried.
 
my first response is listen to your wife and don't get involved in a transaction like this with your grandparents.

my second response? hmmm... it may seem like a good investment but there is sooo much that can go wrong when dealing with family in such matters.

I say worry about you and your wifes housing plans.

Oh, and I am speaking from experiance, don't get involved in such a plan as this with family.
 
Where is the house located in MPK? What street? 200k is alot of money but a bargain in most parts of CA.
 
If for some reason your grandparents stop paying or can no longer pay, will you be able to take over the payments?
 
Originally posted by: sygyzy
Where is the house located in MPK? What street? 200k is alot of money but a bargain in most parts of CA.
Click to expand...

I don't really want to give the street. But three houses recently sold on the same street. Two for $392k and one for $390k.
 
Originally posted by: Jzero
If for some reason your grandparents stop paying or can no longer pay, will you be able to take over the payments?
Click to expand...

Yes. As long as we keep renting and the new mortgage stays under $1300. Which it should.

And unfortunately they will eventually have to stop paying because they won't be here. I'm factoring that in.
 
Originally posted by: OrByte
my first response is listen to your wife and don't get involved in a transaction like this with your grandparents.

my second response? hmmm... it may seem like a good investment but there is sooo much that can go wrong when dealing with family in such matters.

I say worry about you and your wifes housing plans.

Oh, and I am speaking from experiance, don't get involved in such a plan as this with family.
Click to expand...

Can you please explain what happened with your experience? What went wrong? I'm trying to cover my bases by putting my name on their accounts and having direct access.
 
I guess you have to ask yourself if being a landlord is something you wouldn't mind doing. I know when I took over as homeowner of the house that I am living in now I had to kick out some relatives that were there and were just letting the place go to hell. My dad didn't want to do it, because he didn't want to upset family, I knew that eventually something bad was going to happen at that house (REALLY BAD) that would have gotten my dad in trouble. These particular relatives were into drugs and dealing, it was only a matter of time before they screwed up and got caught (hey you wanted to hear the story! 😛 )

anyway they are out, I am in, the house has been completley redone (almost that is...I still have a fence to repair) all of my nieghbors are rejoicing because the house was basically a crack house, I kid you not the garage door had bullet holes in it.

You would think I did well right? the only thing is, that side of my family don't much care for me anymore. I am not afraid of any retaliation or anything, but dont expect any Xmas cards from them.

Not exactly the same situation, but the bottom line is, unless you are willing to do whats neccessary, and you have the stomach for it, I would stay away from going into deals like this.

ANOTHER thing too I had to deal with was my wife. She is very smart, level headed, and I rely on her for many things, at first we weren't together on this deal and it made my life hell. Now a days tho things are much better. I don't know beans about your relationship with your wife, but if she feels like you are putting your families plans over your own plans....then you might catch some sh!t about that too.

just a heads up I guess.
 
I own my Mother's house (so it is mine now I guess). No where near the value you are talking about, but there really isn't a negative right now. It all depends on the people you are dealing with, but it sounds like you are very close to your grandparents, so I wouldn't be very concerned. If the house is valued at $300,000 and you buy it for $200,000 I cannot see anything bad about that. You now have a great investment. When your grandparents are no longer at the home, you can either sell it and come out way ahead or move in and enjoy the house. Another thing to consider, but I live in Wisconsin, and if someone on Social Security/Medicare has to go into a nursing home, they generally take the house and use the money from it to help pay for the costs of the nursing home. That is the main reason I bought my Mother's house.

As long as you can cover the monthly payments and house insurance, then I say go for it. You might also want to get some documents drawn up. Especially if you are going to be handling their money. I think there are more positives than negatives here.

Matt
 
When you go to get a mortgage, they will ask you if the property that the mortgage is for will be your primary place of residence. In this situation it wouldn't be - you'd have to buy it as a rental property and usually mortgages for rental properties require a considerably larger downpayment than a for a property you will be occupying.
 
$190k / $350k = ~54% LTV (loan-to-value ratio).

Their credit must be downright hideous to not be able to get a halfway decent rate at that LTV (I'm thinking sub-500 and/or recent bankruptcy/foreclosure/repossession).

Anyway, yes, what you want to do can be done, but only if the home is quit-claimed over to you and you can qualify for the home on your own. Then you'd be getting a hell of a sweet deal. So sweet that some of your other relatives may not approve.
You will definitely want to declare the house as a rental property in the future when you go to buy your own home. It only makes sense for your income taxes and for future mortgage qualification for your own home. If you do not show the home on your income taxes (Schedule E) as a rental, then lenders will not believe that you collect rental income on it, just FYI.
Mostly this deal is very positive for you, if it works out. Not so positive for your grandparents however, as they will have to sign the home over to you for much less profit than they would have had it they had sold it outright.

There are some negatives though.
- I assume that you don't live in the home right now. Most lenders will want to charge you extra for a rental property loan, or may turn you down outright.
- Any loan officer who will do this deal for you WILL charge extra. No question of that. It is not a cookie cutter and he/she would be exposing himself to some potential liability in the future. The only way to do this deal the way you want it is to make it like a sale disguised to the underwriters/investors as a cash-out refinance, and that's not exactly a kosher deal, if you take my meaning.
- How is your grandparent's mortgage payment history? Don't expect them to pay you any better than they paid their mortgage lender.
- With your grandparents in the home, you won't be able to sell it anytime you want to. Otherwise, they'd sell right now and make a lot more money, wouldn't they? So you could possibly find yourself in a situation where they stop making the payments, and you can't kick them out.
- Lastly (and please pardon me for being so blunt or if I am mistaken), it seems to me that your grandparents may have a longish history of less-than-perfect credit, and of borrowing against their house to pay off accumulated debts. In the industry, those people (who unfortunately are often older and/or retired, but that's because they've home equity throughout their life, but not any savings) are sometimes referred to as "well dippers". Be advised that this deal with you would dry up their well permanently, and that they are probably not aware of that fact and likely won't be until a couple of years down the road when they want to dip again.

I guess it all depends on how close you are to your grandparents.
 
Thanks for your help everyone. I see that there are a lot of factors that I should consider before jumping into this.

Again, thanks for the help and advice.
 
I think there is a bigger potential problem - property taxes. Depending on how they work in your state / county, the act of you buying the house could potentially increase the property taxes dramatically.

For instance, I bought my house last year and my property taxes are $3500 a year.

The guy who lives in the house across the street from me (approx same value) has lived there for 15 years and his property taxes are $1200 a year. If someone came and bought it today - their taxes would be $3700 a year.

Also, what is going to happen when your grandparents die? How are all the other relatives going to feel that suddenly you own their house and will sell it outright etc. And do you "deserve" to make a $100k profit on it??

Honestly if their house is worth $300k - any chance of them selling it, and buying a $200k house themselves? Their mortgage would be down to $50,000-80,000, which would represent a significant monthly savings.
 
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