Posted on: 23rd Mar, 2007 07:17 pm
My son's credit will be more favorable in six moths for him to get a lower interest home loan. He has found a house that he wants to acquire now and wants me to purchase it and he purchase it from me in six months. How do we avoid double closing costs??
Farris, you can purchase the house for your son now and after six months or so when his credit improves you can just quit claim it back to him.
i agree with norman, that you can quit claim the house to him after six months but that time he may have to get the mortgage refinanced in his name and its possible that rates might rise by that time.
so, what you can do is inquire with the lender now whether the mortgage would have an assumption clause or not. if there will be one then your son will not have to refinance it that time.
so, what you can do is inquire with the lender now whether the mortgage would have an assumption clause or not. if there will be one then your son will not have to refinance it that time.
Hi Farris,
Welcome to forums.
Your son can qualify for the loan by making you the cosigner. He will then be using your credit score so that he can get the home loan at a reasonable rate of interest. So, in this way, you can avoid paying the closing costs twice.
Thanks,
James.
Welcome to forums.
Your son can qualify for the loan by making you the cosigner. He will then be using your credit score so that he can get the home loan at a reasonable rate of interest. So, in this way, you can avoid paying the closing costs twice.
Thanks,
James.
farris ellis,
your question specifically was how to avoid two sets of closing costs and the answer to that question is that you can't. in purchasing this home, you are buying an investment property with the intent of renting it to your son. at a future date, your son will be buying a primary residence from you. these are two different loans with different terms so you will each incur closing costs for each loan.
the first suggestion made to you was to use a quit claim deed which has two problems:
1) it is going to be a violation of the terms of your mortgage to sell or give the house to another person without paying off your note. you used the home as collateral to borrow money and after giving that collateral to someone else, the lender wants their note paid off. if you son then refinances the note into his name, he will pay closing costs so you are back to square one.
2) by quitclaiming the property, if you didn't have him refinance the note and your lender didn't become aware of the transfer, the mortgage is still in your name but you just gave away rights to the equity in the home. if the note is paid late or not at all it will affect your credit history.
lastly, jameshogg suggested you both purchase the home as it would allow you to "get the home loan at a reasonable rate of interest". that's not true, actually. the lender would look at the lowest scoring borrower for approval and pricing the risk, i.e. setting the interest rate. all you would be doing is having a loan with both your income and credit involved.
while you did not ask for parenting advice, i'm going to offer some as i am a parent also. if your son has bad credit then perhaps he is still in the process of maturing into responsible adulthood and you should allow that maturation to happen without stepping in before it is complete. if the credit will be improved in just 6 months, then tell your son to wait 6 months. that isn't very long at all.
when buying for a family member keep in mind that it should still be done as if you were doing business with a stranger. the only difference is that because they are family you would consider that as a reason to say yes. but you better be prepared to own this home and be able to afford doing so because there are no guarantees.
good luck!
your question specifically was how to avoid two sets of closing costs and the answer to that question is that you can't. in purchasing this home, you are buying an investment property with the intent of renting it to your son. at a future date, your son will be buying a primary residence from you. these are two different loans with different terms so you will each incur closing costs for each loan.
the first suggestion made to you was to use a quit claim deed which has two problems:
1) it is going to be a violation of the terms of your mortgage to sell or give the house to another person without paying off your note. you used the home as collateral to borrow money and after giving that collateral to someone else, the lender wants their note paid off. if you son then refinances the note into his name, he will pay closing costs so you are back to square one.
2) by quitclaiming the property, if you didn't have him refinance the note and your lender didn't become aware of the transfer, the mortgage is still in your name but you just gave away rights to the equity in the home. if the note is paid late or not at all it will affect your credit history.
lastly, jameshogg suggested you both purchase the home as it would allow you to "get the home loan at a reasonable rate of interest". that's not true, actually. the lender would look at the lowest scoring borrower for approval and pricing the risk, i.e. setting the interest rate. all you would be doing is having a loan with both your income and credit involved.
while you did not ask for parenting advice, i'm going to offer some as i am a parent also. if your son has bad credit then perhaps he is still in the process of maturing into responsible adulthood and you should allow that maturation to happen without stepping in before it is complete. if the credit will be improved in just 6 months, then tell your son to wait 6 months. that isn't very long at all.
when buying for a family member keep in mind that it should still be done as if you were doing business with a stranger. the only difference is that because they are family you would consider that as a reason to say yes. but you better be prepared to own this home and be able to afford doing so because there are no guarantees.
good luck!
Hi Farris,
I agree with Ken. Paying closing costs twice is probably unavoidable in your situation.
If you quit claim the property, you need to inform the lender prior to it. He may agree with your decision but then he may also require a refinance of the mortgage being done. So, your son may have to refinance the existing loan. And, then he needs to pay the closing costs for that. Also, when he purchases the house from you, he will need another loan. So, it comes out to paying the closing costs twice.
Being a parent, I too feel that you should advise your son to wait for some more time and rebuild his credit. Then he will have no problems as such in qualifying for the loan.
Hope this is going to help you..
God bless you.
Samantha
I agree with Ken. Paying closing costs twice is probably unavoidable in your situation.
If you quit claim the property, you need to inform the lender prior to it. He may agree with your decision but then he may also require a refinance of the mortgage being done. So, your son may have to refinance the existing loan. And, then he needs to pay the closing costs for that. Also, when he purchases the house from you, he will need another loan. So, it comes out to paying the closing costs twice.
Being a parent, I too feel that you should advise your son to wait for some more time and rebuild his credit. Then he will have no problems as such in qualifying for the loan.
Hope this is going to help you..
God bless you.
Samantha
