Will my mortgage in the future be affected if I take out a mortgage for my parents house?

Question

My sister and I want to help our parents buy a place in southern california when they do so within the year. My parents will put down 80-90% of the downpayment, and we will give them $50k each. We don't own any property - we both rent.

My parents want to put our names on the title as well as theirs, but I'm wondering how this will this affect our mortgages on our first homes when my sister and I are ready to buy our own place to live in? Also are there any tax consequences for giving them 50k for the house if we have the title to the house?

Also, if my sister & I take out mortgages instead of contributing cash to our parents' house, will this affect our mortgages in the future on our first homes in which we will live?

Answer 1

You must be on the title if you are on the loan, but you do not have to be on the loan to be on title...Just FYI.

It can actually help you a great deal to be on the loan IF all payments on said mortgage are made on time as it will boost your credit score and show good payment history when you choose to apply for your own mortgage. The only way being on title can have a negative effect for you (if you are not on the loan) is that it may keep you from qualifying for first time homebuyer benefits that you may otherwise be eligible for.

A lender may look at the money you give your parents as a gift (especially if you choose not to be on an title) and that can open up a whole different can of worms as far as them qualifying for a loan.

As the laws vary greatly from state to state, you should seek the help of professionals within the property state. I added 2 links, the second one should give you the most accurate info along with contact information for the departments that govern such things. California real estate laws are a bit off from the norm so I highly recommend you talk to someone there directly.

Hope this helps, Good Luck.

Answer 2

From my experiance, I think your parents may be wrong. The credit reporting agencies do not have the resources to monitor every credit transaction. Some things get reported automatically, such as loan applications and such, but the agencies usually need to have the lenders report problems. If your lender has a policy not to report late payments under 30 days, then you are probablay all right. The 30 days does sound like a long time, so, I would still be concerned, if I were you, and try to get back on schedule. Its best if you call back the mortgage company and get a conformation of what you've been told. Be sure to get the name of who told you this. Even if someone did tell you it's OK, the policy may change, and they are under no obligation to tell you. If your contract specifies a payment due date, and a late payment date, they could still hold you to that. Chronic late payments CAN be reported and that WILL affect your credit rating.

Answer 3

Helping your parents with the down payment and being on title only, not on the mortgage will not affect your ability to purchase or obtain a mortgage in the future unless it limits the amount of funds you have to put down on your own home later. If you are on the mortgage as a cosigner, then you are responsible for the mortgage payment as well as your parents. If this is the case, then you would need to qualify with both your new mortgage payment and the current mortgage payment with your parents. As stated previously though, you shouldn't be affected if you are just on title and not on the mortgage as a cosigner. For the tax ramifications, I would suggest contacting a CPA or other tax authority in the matter. I hope this helps.

Answer 4

If you sign for your parents' loan, you may have problems getting your own mortgage. When pre-qualifying for a loan, lenders look at Debt to Income Ratio, and becasue you will be obligated on your parents' note and it will show up on your credit report, your Debt to Income Ratio will be affected in a negative way.

Assuming your parents can qualify for their mortgage by themselves, you should do a gift letter for the downpayment, and if you want to be on the title, you can ask your loan or title officer to be put on the title the next day after closing. That way, you will be on the title of the house, but will not be obligated on the note.

Answer 5

If your names are on the mortgage for your parents' house, then yes, your ability to get credit including mortgages while that one is still active would be affected, since technically you're responsible for it if your parents don't pay it.

Giving them $50K will require each of you to file a gift tax return, but there probably won't be a gift tax due.