IS it a good idea to have family memebres buy a home for us then we later assume the loan when we qualify?

Question

We are coming out of a deed in lieu of foreclosure and cannot get a home loan right now. Family members have offered to buy us a home then we assume the loan or buy from them later when our credit score gets better. The equity will be ours. I am not so sure this is a better idea than leasing to buy a home on our own. It sounds easier than it might really be. What would some potential pros & cons be?This will be done in FL.

Answer 1

There is a 95% chance that you won't be able to assume the loan...the vast majority of loans are not assumable.

Also, it will be a minimum of 4 years before you will be able to purchase another home at A-paper rates, unless you want to go subprime at an extremely high rate of interest.

You cannot have any adverse credit between now and when you buy again or you will pay dearly on a home....even if you have to pay $25 to overnight a check to a creditor...it will be better than paying late.

Answer 2

One potential con: Finding an assumable mortgage. I can't think of any lenders that are allowing assumable mortgages. I am sure there are some out there, but not many. But you said you could buy it from them, so no big deal.

On the same note, there are very few lease to own or rent to own properties available, and owners that will carry the financing typically want to see a good credit score.

Family transactions have a way of going bad, so while everyone is in good spirits about this, get everything in writing and make it a legally binding agreement. This will avoid misunderstandings down the road and keep everyone speaking at the family reunion.

Answer 3

It could work out really nice, but here are a few things to consider:

If you don't keep up on the payments, your family members' credit scores are going to be hurt. The fact that you foreclosed on a house already makes you a big risk. Are you sure you want to put your family members in the potential situation where they will have to bail you out and take on the loan, or potentially have their credit damaged?

Do you trust these family members 100%? I cannot count how many times I have heard of people who borrowed from a trusted friend or family member, only to have that trusted person turn on them when the going got rough or when the situation for self-advancement presented itself. In other words, those family members could easily manipulate your situation and take advantage of you. Even the most well-intentioned people do it. Money is a powerful motivator, and unfortunately, it does not always motivate in a good way.

I would personally recommend that you just rent until your credit gets better and then take care of this yourself. You do not HAVE to own a house. This is a tremendous burden you are placing on yourself and your family. It could work out, but more times than not this sort of transaction results in either the situation being held over your head, or something happening where you and certain family members are not speaking anymore. This is a big risk for everyone involved.

Answer 4

You won't get any "credit" towards your credit rating for taking over the payments, because the loan won't be in your name. You would need to rebuild your credit rating using other types of credit. And the "equity" won't necessarily be yours because the deed won't be in your name either, unless you can put together some kind of written agreement with your relatives that you will make the payments and at a time when you are able to qualify for your own mortgage, you can buy the house from them at the old mortgage balance or something like that. You would have equity then, based on the (hopefully) increased value of the house minus the partially paid down mortgage balance. Usually with a lease purchase, they will want you to be able to get a mortgage within 12 months. Will that be possible for you that soon?

Answer 5

There are not very many assumable loans out there anymore. I would have a Land Contract drawn up by an attorney and recorded with the county. By doing this, you'll be put on the title to the home and can simply refinance it and Quit Claim the family off later.

Answer 6

It's a good idea for you but a terrible idea for your relatives...if you default on the loan they would be responsible. Also you are mistaken about he equity being yours...until the deed is in your name the equity is legally not yours. You couldn't take a loan out on the equity until you refinanced the property in your own name...also you legally would get no benifit at tax time since you are escentially renting the house from your relative.