Child helps par­ents buy fore­clo­sure as non-oc­cu­pant co-bor­rower

The News-Times (Sunday) - - Real Estate - Terry Hastings Terry Hastings, To­tal Mort­gage Ser­vices, 203-470-5434, Ter­ryHast­

Mort­gage banker: Terry


Home value: $500,000

Loan amount: $450,000

Loan terms: 5 per­cent Fed­eral Hous­ing Ad­min­is­tra­tion 30-year fixed

Back­story: Hastings re­ceived a call from a for­mer client who had found a great fore­clo­sure com­ing for sale on his street.

The price was com­pelling, and it would be ideal for his par­ents but they were on a fixed in­come. What were his op­tions?

Hastings spoke to him fur­ther about his par­ent’s in­come. With a chal­lenged credit score, they were un­able to qual­ify for a loan.

The client ex­plained that he was will­ing to pay part of the mort­gage, how­ever, no bank would use that as in­come since it is not guar­an­teed. If the son in­di­vid­u­ally bought the home, it would be viewed as an in­come prop­erty re­quir­ing a higher down pay­ment.

Hastings sug­gested a dif­fer­ent strat­egy to buy the home. The son could go on the loan as a “non-oc­cu­pant” co-bor­rower, mean­ing he was guar­an­tee­ing the loan with his par­ents even though he was not help­ing with the down pay­ment.

What­ever por­tion he wanted to help his par­ents with the monthly mort­gage pay­ment would be un­doc­u­mented and un­der a sep­a­rate agree­ment.

Hastings col­lected the new in­for­ma­tion from the son to see if he would qual­ify. As a nonoc­cu­pant co-bor­rower his cur­rent in­come and ex­penses would be ex­am­ined and any re­main­ing qual­i­fy­ing in­come could be put to­ward the new loan. Af­ter run­ning the num- bers, the loan worked.

Un­for­tu­nately, credit scores did not work in their fa­vor. As a rule banks will col­lect the mid­dle credit score of ev­ery bor­rower on the loan and use the low­est score to brand the risk level and thus the rate on the loan.

Even though the son had ex­cel­lent credit, the par­ent’s lower score would have to be used, but an FHA loan would work.

Hastings went through the pros and cons of the loan, but two things stood out.

First, the home was an ex­cel­lent price and the buyer saw im­me­di­ate eq­uity. Most im­por­tant, the son could be as­sured that his par­ents were liv­ing nearby. The son quickly took Hastings’ ad­vice and agreed to pur­chase the home with his par­ents.

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