House purchase dilemma....help!

[chalmers]

Hey all, in kind of a pickle here and I wanted to see what my options are regarding a potential house purchase.

I'll make it as short and sweet as possible.

My sister and bro in law live in a nice cul de sac and we're over there all the time. The guy next door is trying to sell his house because they want to upgrade into something bigger due to 2 kids and 2 90lb dogs. He's willing to just allow someone to assume the rest of the loan, takeover the payments and call it a day. He and his wife/kids are currently living with his parents so they can more easily show and potentially sell the house.

He showed me girlfriend and my sister the house yesterday just for the heck of it, and my gf mentioned to him that it would definitely be something we'd be interested in but our apartment lease isn't up until February. He said he'd pay the buyout amount of our apartment if we were interested in just taking over the payments. It seems like a golden opportunity for me to own my own home and not have to worry about a down payment and 6/30 years already paid for. He just wants to get rid of the current mortgage pmt ASAP so he can move out of his parents and into a new home which he really wants but obviously can't afford 2 mortgages.

The house is pretty nice. A very good friend of mine and my gf will be living with me. I have very good credit, she has very poor. Both of our cars are in my name because she couldn't get one, and I also have about $20k in school debt. However with us 3 living together and splitting a $1,100 mortgage, her and I would be spending about the same as we do in our apartment now. ($650 ish a month).

I can't see a downside to this....except that I'm worried that the bank won't authorize the transfer to me because I have 2 car loans in my name and a school loan because of her crappy credit...even though we can easily afford it together, especially with my buddy living with us. I asked him if he was interested in signing on the loan with me so that more income would be included and would potentially increase the chance of approval. He's thinking about it.

What should I do? Would I have a decent chance of Wells-Fargo approving me on my own even though I'll only be paying 1/3 of the mortgage?

Thanks for any and all advice...really hate where I live now and would love to be in a home.

 

[SunnyD]

Unless these people are loaded, there's more than meets the eye on this deal. I'm guessing he's seriously upside-down on his mortgage and is looking to offload it. Either that, or there's something wrong with the house itself.

 

[Capt Caveman]

Unless these people are loaded, there's more than meets the eye on this deal. I'm guessing he's seriously upside-down on his mortgage and is looking to offload it. Either that, or there's something wrong with the house itself.

This

 

[Tweak155]

I'd not do it. I've watched too much Judge Judy to see this trainwreck coming.

 

[Alienwho]

I doubt his mortage allows him to pass it along to someone else. This is shady territory you are entering. Do not proceed.

 

[EagleKeeper]

Unless these people are loaded, there's more than meets the eye on this deal. I'm guessing he's seriously upside-down on his mortgage and is looking to offload it. Either that, or there's something wrong with the house itself.

This

What is the amount of the note and the value of the house.

If your GF does not have the credit to purchase a vehicle; do not try to get her on a mortgage.

Do you know your buddy well enough to tie your finances to him. If he bails over the next 20-30 years; you will have to cover the note all on your own while he is reaping the rewards. IF his name is on the title; he has to release it; you can not force him.

 

[GotIssues]

6 years puts it at pre-bubble burst pricing.

Ask how much is left on the loan and what it was appraised at for taxes (and when). Check out other houses for sale in the area (comp shopping). People generally don't part with thousands of dollars because they are lazy. Something doesn't seem right.

Assuming all is right, there is probably something you can do if you plan on receiving rent. Ask a realtor and/or mortgage banker. Discuss, with the realtor, about certain measures to protect yourself if something is being hidden (home warranty). When we were shopping around for a mortgage, I probably had long conversations with 4 different banks about various things I didn't know or understand just so I could figure the whole thing out before we jumped into a large liability, you can do the same.

Do your homework, it could be that you were in the right place at the right time, or it could be he's trying to screw you over. My advice is to get a good realtor, and they'll help you navigate and protect you, because hey, it's free money to them and worth it for the protections it gets you.

 

[mnewsham]

If everything is fine, make sure it is your name on the title and the other two are basically renting.

 

[chalmers]

The house is in fine shape. He just wants to get out of the loan because there's a house he really wants to upgrade to but he's fearful by the time his house sells...the house will be gone. He showed me his payment history on the house...on time every month for 6 years. There's about $130k left on the house. It's in great shape as far as I can tell (not a handy man)...and my sister has nothing but good things to say about living next to him and his family.

He told me that without selling his house first...he'd have to bring appoximately $16k to the closing on their new one, but wouldn't be the case if their previous mortage is off their books. I literally would just move in and assume the payments.

As far as the questions about my buddy. He's pretty much my best friend, and we're incredibly close to my sis next door. I just see this as a golden ticket to get into a home, but perhaps I'm missing something.

 

[apac]

Even if the guy is being 100% honest with you, this is not in your best interest. With loan rates and housing prices where they are now you would do much better to purchase the house at the current value.

 

[apac]

The house is in fine shape. He just wants to get out of the loan because there's a house he really wants to upgrade to but he's fearful by the time his house sells...the house will be gone. He showed me his payment history on the house...on time every month for 6 years. There's about $130k left on the house. It's in great shape as far as I can tell (not a handy man)...and my sister has nothing but good things to say about living next to him and his family.

He told me that without selling his house first...he'd have to bring appoximately $16k to the closing on their new one, but wouldn't be the case if their previous mortage is off their books. I literally would just move in and assume the payments.

As far as the questions about my buddy. He's pretty much my best friend, and we're incredibly close to my sis next door. I just see this as a golden ticket to get into a home, but perhaps I'm missing something.

Get an appraisal, and talk to the loan agent responsible for his loan. If both check out then maybe it can work out. Also, if you have any friends in the industry, ask them why he needs to bring $16K extra to closing if he has the house on his books. I've never heard of that.

 

[Apple Of Sodom]

Thanks for any and all advice...really hate where I live now and would love to be in a home.

If a deal is too good to be true...

Red flags all over this. There is something wrong. I've NEVER heard of someone just saying "take over payments." People don't do things like that to be nice or lazy. There may be an issue with the current mortgage, or he ends up not transferring the property to you, or he know of a problem with the foundation, or there is mold, etc.

Proceed with caution. Get an appraisal and an engineers report. If he is doing owner financing, fine, but make sure you have an actual lawyer draft paperwork.

 

[spidey07]

If a deal is too good to be true...

Red flags all over this. There is something wrong. I've NEVER heard of someone just saying "take over payments." People don't do things like that to be nice or lazy. There may be an issue with the current mortgage, or he ends up not transferring the property to you, or he know of a problem with the foundation, or there is mold, etc.

Proceed with caution. Get an appraisal and an engineers report. If he is doing owner financing, fine, but make sure you have an actual lawyer draft paperwork.

Yes. This has BAD idea written all over it. He's likely upside down on the house and it's keeping him stuck in it until he finds a sucker to pay too much for it, or what's described in the OP. Bad idea. He likely can't get a new place until he finds a sucker for the current one.

 

[dullard]

6 years puts it at pre-bubble burst pricing.

6 years ago was the PEAK in nationwide house prices. This particular location may not have been at its peak. But, generally, on average, housing prices have fallen ever since.

Put it this way, if it was the median house selling at $229,200 and 5% interest rate, then it would now have a balance of $206,132 assuming all payments made on time but without any extra principal. The median house now sells for $168,300. Meaning, if the OP's location behaved like the naitionwide average, and it was a median house, then the OP would be losing $37,832 with this deal.

This location may not follow the national trends though.

 

[Jeraden]

Deal just doesn't make sense in general. What's the difference between him just selling you the house and you "taking over the mortgage"? Either way to him, he'd be getting rid of the house. Taking over the mortgage sounds like a tremendous headache, and quite possibly not even possible anyways. It would be far simpler for both of you just to buy it off him. So his method of making it seem like taking over the mortgage is just an easier way to do the deal is just crap. Only reason to do that is because he'd take a loss on selling the house and not be able to cover the existing outstanding balance on the mortgage.
Plus, it's probably not even possible to assume a mortgage - that's just not how things are done. It would be a refinance at the very least, which really is no different than purchasing the house anyways.

 

[mnewsham]

Deal just doesn't make sense in general. What's the difference between him just selling you the house and you "taking over the mortgage"? Either way to him, he'd be getting rid of the house. Taking over the mortgage sounds like a tremendous headache, and quite possibly not even possible anyways. It would be far simpler for both of you just to buy it off him. So his method of making it seem like taking over the mortgage is just an easier way to do the deal is just crap. Only reason to do that is because he'd take a loss on selling the house and not be able to cover the existing outstanding balance on the mortgage.
Plus, it's probably not even possible to assume a mortgage - that's just not how things are done. It would be a refinance at the very least, which really is no different than purchasing the house anyways.

if he has 160k left to pay, have him sell it to you for 160k....

 

[PingSpike]

Just buy the house from him the normal way or not at all. The only time I've ever heard of the "take over payments" shenanigans is when some one bought a loaded truck they couldn't afford, drove it for two years and are now so underwater on the loan they'd have to write a check to get rid of it. And I bet that's exactly what is happening here, only on a much grander scale. Is the bank going to be privy to this ownership transfer or are you basically going to end up renting this place? The legality sounds dubious at best. I'm not even sure when they do it with a car is it legal, and a house is much more complicated to buy than a car.

Nevermind, just don't do this....it smells bad. What is the house worth and what does he want for it? He says he owes $130K, is it worth that much? Buy it that way but make sure you get a home inspection because the whole shady nature so far makes me think there's something to hide.

And unless you're planning on gay marrying your buddy, don't put him on the loan.

 

[Rage187]

if he has 160k left to pay, have him sell it to you for 160k....

this. Have him sell it to you for what he owes. No reason to get Realtor involved but I would have a lawyer do their due diligence and research the title.

 

[rivan]

Unless these people are loaded, there's more than meets the eye on this deal. I'm guessing he's seriously upside-down on his mortgage and is looking to offload it. Either that, or there's something wrong with the house itself.

Thirded.

Totally aside form this - you should not even consider it unless you can afford this place yourself. What happens if.... your GF and your friend hook up and move out? (Obviously that's a joke, but there are plenty of scenarios where both of their incomes could end up out of the mix, and you'd be on the hook for the entire mortgage.)

 

[mnewsham]

Thirded.

Totally aside form this - you should not even consider it unless you can afford this place yourself. What happens if.... your GF and your friend hook up and move out? (Obviously that's a joke, but there are plenty of scenarios where both of their incomes could end up out of the mix, and you'd be on the hook for the entire mortgage.)

There are currently three people in existence i would trust splitting rent with. I hope it doesn't come down to that But there are people out there i would feel comfortable doing it with. But i wouldn't do it with my SO, for the simple fact that love, relationships, etc. Are very unpredictable, shit happens.

 

[ViviTheMage]

You might think it's a fine house, but have proper appraisers check it out. AFAIK you cannot just transfer a mortgage like that either...you can't even do a car loan AFAIK.

Do banks really knock you down a few notches because you have 20k in student loan debt?

 

[Mursilis]

The house is in fine shape. He just wants to get out of the loan because there's a house he really wants to upgrade to but he's fearful by the time his house sells...the house will be gone. He showed me his payment history on the house...on time every month for 6 years. There's about $130k left on the house. It's in great shape as far as I can tell (not a handy man)...and my sister has nothing but good things to say about living next to him and his family.

He told me that without selling his house first...he'd have to bring appoximately $16k to the closing on their new one, but wouldn't be the case if their previous mortage is off their books. I literally would just move in and assume the payments.

As far as the questions about my buddy. He's pretty much my best friend, and we're incredibly close to my sis next door. I just see this as a golden ticket to get into a home, but perhaps I'm missing something.

So essentially, he's offering to sell this house to you at ~$130K. Research the area and see if that's a fair price for the house. And FYI, most mortgages are not transferable/assumable. You'll need to take out your own mortgage, which you'll use to pay off this guy's mortgage and have title transferred to you. This deal is more complicated than you think it is. If you just "take over payments", all you're doing is becoming a renter, paying this guy's house off for him. In the end, he'll still own it.

 

[DrPizza]

It's not *that* unusual. Search for land contracts on Google. If the appraisal of the house is for what the house would be sold to you (or more), then it's not necessarily that bad of a deal (if that's the way the owner is going to do it.)

Concerning adding the girlfriend - I have a friend. He bought a house. He paid for the down payment. He got engaged. He spent hundred of hours working on his house - new wallboard throughout the upstairs, had the hardwood floors repaired and refinished, etc. - all out of his pocket. The house was the worst house on the block when he bought it - AFTER he fixed it up to be possibly one of the best houses on the block, the fiance finally moved in. She lived with him for 6 months. "If you really love me, you would add me to the title. You don't show any indication that we're entering into a partnership." 8 days after she was added to the title, she surprised him with "we're breaking up, and I want the house. I'm entitled to half because my name is on the deed." You'd think it would be easy to show what she was up to? Common sense and the law don't necessarily overlap. It's already cost him several thousand in lawyer fees. HINT: if you're making the majority of the payments, you don't want other names on the deed. If you're married, then it doesn't matter in community property states.

 

[Tsaico]

He would need to start transferring the deed, a quit claim Grant deed or whatever, which will change a name on a title of land, but from what I understand, it can only be done between family. ie, your father owns a house, puts yours on it, then removes his name. The owner is now listed as you and there is no sale on the house.

Usually this is to get around sales tax, closing costs, etc. I see the most likely as being a chance of being underwater on the loan or very near, meaning the most he can sell for is the amount he owes perhaps less, so when the loan is paid off before escrow completes sales tax is calcualted, there is nothing left. I would also say it would depend on how long you plan on being here. It will take years for the prices to come back, so if you are there long term, it will balance out eventually.
When I bought my place, I knew it was at the bubble, and I "overpaid", but my mortage is what I was expecting to pay and a fixed rate, so unless I need to sell now, I will fine in the long run. (I hope 15 years, but we will see)

As for applying with the others, I would not. I would do it on your own if at all possible, if you cannot, then perhaps with your sister, but never a GF or a friend. I have seen too many friends walk away or GF not work out for this. It happens with family too, but at least you can tell on her to your mom and feel a little better. Then after the deal closes, file a quit claim to remove her name from title and loan. This way, when you mess up, just your credit goes down the toilet.
http://homeguides.sfgate.com/grant-deed-vs-quitclaim-deeds-6766.html

 

[chalmers]

Thanks for the great insight everyone, I appreciate it. You guys sure do know your stuff.
I have some updates to some of the information I posted.

The mortgage transfer is called an Assumption Loan through Wells Fargo. It apparently allows you to do just that...please correct me if I'm wrong.

The reason the guy (Dave) would prefer this way is because apparently nowadays banks are requiring sellers to pay both closing costs for the buyer and seller of a house? So the $16k I mentioned previously was what he'd have to conjure up if he sells the house to close it...with an Assumption Loan...no such closing costs exist. That's why he'd be fine with paying off my apartment payoff...he'd still be ahead (if you look at it that way).

I'll learn more when I talk to Dave tomorrow about his loan and what's it looking like right now.