Financing in Massachusetts>Question Details

Joe Adams, Both Buyer and Seller in Massachusetts

Have my name on Parent's mortgage, but don't pay it. Plan on moving to bigger home soon.

Asked by Joe Adams, Massachusetts Fri Nov 9, 2007

How does a lender look at this when pre-approving an amount for my new mortgage? I have my current mortgage (considerably paid down). So I expect that I will have a significant down payment available when I sell current home and buy another, but will certainly need to take out a new mortgage. I'm wondering if my name being on parent's mortgage will have an impact on the amount I can get. Does the lender look at my signature on this 2nd mortgage (even though I pay nothing) as: Me carrying a 2nd mortgage? Is it assumed as extra debt? Do they ignore it completely? Do they view it as a good thing that can be leveraged as positive equity/collateral should I default? other? Long story short, is my name on my parent's mortgage a good, bad or indifferent thing when calculating the ceiling for my new pre-approval?

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Hi Joe,

I am currently working with a buyer who is in the same situation. His mom passed away and to keep the house within the family, he is a co-signer for the mortgage, allowing his dad to still live there. My client does not pay the mortgage, and in fact lives in an apartment currently. The lenders do and don’t look at this as debt. With a statement from his dad and proof that his dad pays, and not him, they now consider the payment his dad makes as income to him, so it basically washes the debt away. His financing was not affected by this at all. Weather he had this obligation or not, he would have been approved for the same amount with the same interest rate, as if he did not have this obligation.
1 vote Thank Flag Link Fri Nov 9, 2007
Hi Joe,

My buyer spoke with 2 mortgage companies who were structuring the loan as I described. Here are their names and contact info: Jay Austin/Star Mortgage 508-941-5616 and Dave Kurzman/First Mariner Mortgage 617-438-9352. Best of Luck to you and thank you for the “Best Answer”!
1 vote Thank Flag Link Fri Nov 9, 2007
If the bank allows you to declare the income, as suggested, that is good for debt ratio. But, certain lenders will NOT allow you to be on two mortgages at once and call both mortgages "Owner Occupied". Non-Owner Occupied rates are higher than O/O. Don't know in your case how they might view that.. DON'T ask them, but be prepared for it.
1 vote Thank Flag Link Fri Nov 9, 2007
Sorry, had to delete my earlier answer as I did not notice that someone else from my company was signed in on Trulia on the computer that I was using. I thought I was the only one who was addicted to Trulia. So here's my earlier statement again with my name attached to it.

Hello Joe. Initially, your credit report will show your parents' loan as a debt because your name is on it. Depending on the new lender's underwriting policies, a letter from your parents that states that they are paying the entire loan payment may suffice to exclude the monthly payment from the debt to income ratio. I had a client once who was able to get a loan because his soon to be ex-wife signed an affidavit that stated that she paid the monthly loan payments for the house that was on the market to be sold. Some lenders may not care about who makes the payments as they might see the fact that your parents could not qualify for the loan on their own as a risk. If your name is only on the second mortgage but not on title, I doubt that the new lender will see it as a good thing as your parents' house will not count as an asset in your financial statement. I think the best thing you can do is to discuss this with a qualified loan broker as they are familiar with the underwriting requirements of different lenders. Good luck.
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1 vote Thank Flag Link Fri Nov 9, 2007
Ute Ferdig -…, Real Estate Pro in ,
MVP'08
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Joe, when you boil it down, the issue will most likely not be who pays it in practice but who is responsible for paying it in case of a default. If that's you, it will have some impact on your next loan. However, if you have a down-payment of 20% or more I am sure the bank wont worry too much if your current income is in line with the debt-income ratios suggested for your price point.
1 vote Thank Flag Link Fri Nov 9, 2007
Joe, your best bet is to sit down with someone from the bank who will run your credit to see how you qualify for your next purchase. They will be able to tell you if you should take your name off of your parents note, lowering your debt to income ratio. When in doubt ask the professional, and in this case it is a bank.
1 vote Thank Flag Link Fri Nov 9, 2007
Thanks for the responses, folks. Melissa, what you described is very close to my situation. My name is not on my parent's mortgage due to their credit rating or financial situation, it's there for ease of legal transition of the property when the eventaul time comes to do so. (I'm an only child.) I am hoping that a letter along the lines of what you and Ute describes will carry the day.If/when my existing home sells, I'll be looking at a 50-60% down payment for my trade-up home, so I should be OK regardless of how this plays out. Ultimately, based on the various angles you guys described, it sounds like different lenders may yield different answers, so talking to a lender is the next step for me to take. Was hoping it was a black and white situation, but I guess very few things are ever black and white when hundrerd of thousands of dollars are at stake. Thanks again!
0 votes Thank Flag Link Fri Nov 9, 2007
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