I currently own 2 homes. I would rather not get into the details but I got into this position trying to help my sister :smack: and she is screwing me over so I need to sell asap. In addition we are caring for my mother-in-law and to make things easier she has offered her home to us for 1/2 of its value.
Summary:
I have a mortgage for $88K on a home that is probably worth about $80K this home is up for sale. Been on the market for 1 year. This home is in my name only.
I have a mortgage for $122 on another home worth about $120K this home is also for sale. Been on the market about 6 months This home is in my wife and my name.
I have an opportunity to buy my mother-in-laws home for half of what it is worth and would gain about $100K in equity.
Is it possible to set up a plan with the bank to buy my mother-in-laws home and use some equity to pay down the mortgage on the joint owned home and basically sell it at a loss. I know the bank would not give me a 3rd mortgage (I have great credit but not enough cash flow, nor would I want 3 mortgages). This would allow me to sell the more expensive home and then use the $$ that I pay on that mortgage to pay down the other home while my sister continues to pay the rent on the other home. In 6 or 8 months I would have paid it down enough to sell.
The other option would be for my wife and mother in law to get a loan on the mother-in-laws home and use equity to sell the more expensive home (that we both own). Then to short sale the home my sister is in. I am the only one on the mortage with my sister so the equity my wife and mother in law had would not be accessable by the bank during the short sale. I would probably qualify since I was laid off work about a year ago. I am back to work now but nearly all my savings is gone. I understand this could hurt my credit for a couple years but that may be better then dumping another 5K-10K into a home since I would not need another mortgage because we would have secured one already.
I am not sure that a bridge loan would be what I need. I do not need to obtain the loan on my Motherinlaws home till the selling home sells. There would be no need for me to have to make extra payments and pay extra interest while the selling home is on the market. I would like to be approved for a mortgage of about 10K more than the selling price and then with the extra my mother in law could pay down my mortgage and allow me to sell. If both could be closed on the same day that would be the best situation or maybe a day or two apart depending on logistics.
Owe 122K on one with interest rate of about 4.5% I believe and payment a little less than 1K. That includes Tax and insurance. Realtor says it is probably worth about 120 - 125K. At 125K I would lose about 8 or 9K because of realtor fees and such.
Owe about 88K on second with rate of 5.75% or maybe 6%. Payment is about 750 and that includes tax and interest. My sister pays $700 a month on that one. This one is worth about 80-85K and At that amount I would lose 5K-8K after fees.
My mother in law would sell us the house and we would have about 100K in equity.
Credit is above average.
Numbers are close estimates I do not have the bills in front of me.
The reason I ask is because I recently refinanced a rental property using HARP. This rental property had a monthly mortgage of $1700 (6% interest rate) but due to the decline in the market where it’s located, I could only get $1000 in monthly rent. But I refied with the HARP program, which was surprisingly easy (no closing costs whatsoever, no appraisal, etc and I am upside-down on this loan) and am now paying $750 per month in mortgage (3.5%), which greatly helped my cash flow situation.
Short selling (IMO) is not something you should enter into lightly. It WILL effect your credit score, and I think you may be able to avoid it. Again, no idea if refinancing and renting out your home is an option. But if so, it’s a nice income stream and would not damage your credit.
Here is what I would recommend (we were apparently posting at the same time): Call both lenders and ask if you qualify for a refi under the federal HARP program. Again, no fees to you and the process is unbelievably easy --most of it is done over the phone until closing, when they send a notary to your house to sign everything. No money out of pocket AT ALL.
If so, check out the market and see if you can rent out the house your wife and you currently live in. The one your sister is renting from you should turn into a positive cash flow or at the very least a break even. You can sell one or both once the market goes up. Not sure where you live, but here in California the worst is behind us and RE mkt is bouncing back.
Also, is MIL willing to allow you two to take over payments without transferring title for the short term? I am unclear is she plans to stay in the house and live with you or if she is moving…
That may be a better idea. I could do a HARP loan on the rental. If I could somehow use the equity in my mother in laws home to pay down the larger loan and sell that one. Then with a lower interest rate on the rental using HARP I could pay the extra from the home I sold to pay the rental down quicker. In about 6 months to a year. I would then own 75K - 80K depending on how much I can pay and for how long. Then I could sell for no loss. I just feel like I need to have some information before I talk to the bank. I do no know if they will give me all my options, they may try and “sell” me the best most profitable option for them.
Mother in law owns house outright and there is no rush to take out the loan. She will continue to live at the home once we buy. The reason we would buy and live there would be to help her as she is starting to not be able to and she is a widow. My goal would be to unload both other homes if I can. She is also ok with us not buying the home till we sell ours. She is not is a rush.
Read the website about the federal HARP program. My bank did not offer this to me, but when I learned about it, I searched and found out I did qualify (and I was $50k underwater at the time!!). Since my refi, I am now in a positive cash flow position with my rental and the zillow estimate of my rental home is up $20k.
If I were you, I would do everything possible to avoid a short sell. Take advantage of the current HARP program while it’s available, get a lower interest rate, ride out the recession and you will be in great financial shape in a few years when the market recovers.
If she owns her property free and clear and is willing to allow you to live there (for now) in exchange for helping her, then I would not take out another mortgage right now. Just refi the other properties and rent them out.
Thank you for the info. That is what I was looking for. Even if I need to use my mother in laws equity to sell at least one I will use the HARP to save money while I decide what to do. THanks again for your help.
Be careful – this may leave your mother-in-law liable for gift tax. She is in effect giving you a gift of around $50K, by selling you the house at half its value. The IRS is well aware of such schemes to avoid taxes, and quite experienced at catching them.
If this gift is because you are ‘caring for her’, then you might be better off having a formal arrangement where you are hired as caregivers for her, and she pays you a specified amount each month. That will contribute to your cash flow right now, without causing tax problems for her.
Possibly she could sell the house to you as a contract for deed, for the full value of the house, then hire you as caregivers for her for an amount that is about half the monthly payment on the house. In effect, she would be trading half the value of the house to you in exchange for caregiver services, month by month.
Of course, these options cause an increase in your taxable income. You may need advice from a tax professional on this, to compare your additional income tax vs, her gift taxes.
MIL can gift both newetl2010 and Mrs. newetl2010 $13k per year, without any tax consequences. Have MIL sign a doc that says she is gifting you $13k equity in her house & gifting your wife $13k equity. If you do this before 12/31/12, that will take care of $26k. She can do the same thing on 1/1/13 and you and your wife will have $52k in equity in the house without any tax consequences. Totally legit, within IRS guidelines, etc and will not cost you or your MIL a thing.
Fyi, my parents gifted the rental house we rent out like this. It took several years for us to completely own it, at which point they transferred title. They used a lawyer because we have one in the family and it was free, but the IRS does not require that.