my mother in law wants to buy us a house but she is still paying mortgage on her own house , would it be considered an investment property

Asked by Rebecca Angeles, Valley Hi / North Laguna, Sacramento, CA Wed Jul 18, 2012

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14
Teri Andrews…, Agent, Auburn, CA
Wed Jul 18, 2012
Is your mother in law going to obtain a loan on the property for you & then rent to you? Then it would most likely be an investment.

If your mother in law has the cash and is making a loan to you to purchase the home, then you are the buyer and she is the "lender" I call that the Bank of Mom.

Is your mother in law going to buy the home then live with you in it as her primary residence? Then it would be owner occupied.

As other have pointed out she can also act as a non occupant co-borrower for an FHA loan with you as the buyer/owner. Talk to your lender for her options.

Be sure she also talks to her tax professional.
3 votes
Jamie Collins, Agent, Fair Oaks, CA
Wed Jul 18, 2012
It will depend on if she is purchasing it or if she is helping you purchase it as a co-signer or co-borrower.

If you are going to be the owner occupant then you could possible qualify for a lower down payment and /or interest rate.

You should call a good lender. I am assuming you do not have a good lender yet because of the question.

Here is a great one.

Glenn Olsson
Board of Directors-CAMP
Calif. Association Of Mortgage Professionals
Sacramento Chapter
916-276-6236-Cell
916-880-7714-E-Fax
http://www.glennolsson.com
1 vote
Keisha Mathe…, Agent, Elk Grove, CA
Wed Jul 18, 2012
Hi Rebecca,

If she does not plan to live in the home, plans to rent it out, and is keeping her current home, yes... it would be considered an investment property.

Keisha Mathews, REALTOR®
CDPE®, HRC®, HAFA® Certified
The Short Sale Lady(sm)
Century 21 Landmark Network
(916) 370-1803 cell/direct
(916) 405-3886 fax
keisha.mathews@century21.com
http://www.SheSoldItForMe.com
lic#: 01439130
1 vote
Jim Walker, Agent, Carmichael, CA
Wed Jul 18, 2012
Yes. If she intends to stay in her current home and let you make the payments on a second home.
She is the investor/
0 votes
, ,
Wed Jul 18, 2012
Sue,

Its not that cut and dry. If she isn't living there it isn't her primary residence, but that does not automatically make it an investment property. It could also be a second home. A second home is treated differently for both lending and tax putposes (consult your tax professional for detials).

An investment property is used specifically as an investment, normally as a rental. A second home is not.

Sincerely,
Greg
0 votes
Sue Archer R…, Agent, Palm Harbor, FL
Wed Jul 18, 2012
the answer will lie with the lender, and different lenders may have different ideas. All of the respondents below talk about the occupancy. if she's not living in the home but she is buying it, then it's an investment property. To define it otherwise is fraud.

However, there is another option to explore and that is using gift funds. If your credit scores are high enough, and your income is high enough but you're lacking the money for the downpayment, the loan and ownership of the house can be under you and your husband's name, with the downpayment coming in the form of a gift.

Again, the answer to question was YES, it's investment property if she's not living there. The discussioni is more if there are other alternatives as well for you to consider. Talk to your lender.
0 votes
, ,
Wed Jul 18, 2012
Rebecca,

It doesn't matter if she is paying a mortgage on her home or if it is paid off, occupancy is occupancy. Generally speaking if she is not going to occupy the property she would apply for a second home mortgage, or as an investment property, depending on the circumstance...

But there are ways to do it as owner occupied, such as you buying and have her be the non-occupant co-borrower, as described in many of the posts below, this is known as FHA's "Kiddie Condo" mortgage (note: it doesn't have to be a condo).

There is also another, lesser known, program where a parent can purchase a home for a child with a conventional loan too. The guidelines are pretty rigid but it can be done depending on scenario. The major difference in this loan is the child is not on the loan at all, only the parent is. It also requires a larger down payment as it is conventional, and the parent has to qualify for both payments (if they have their own housing payment) on their own income, none of the child's income can be used as they are not an applicant on the loan.
Sincerely,
Greg
0 votes
is there a certain distance the second home has to be away from her primary residence in order it to be considered a second home?
Flag Wed Jul 18, 2012
Ute Ferdig, Agent, Auburn, CA
Wed Jul 18, 2012
Hello Rebecca. Lucky you. You have a nice mother-in-law. Whether a property is an investment property or a primary residence does not depend on whether your mom is still paying on another mortgage. If your mom will not move in with you, the house she is buying for you, would be considered an investment property because it would not serve as your mom's primary residence. That is assuming your mom is not just co-signing on a loan that you obtain.

I would recommend you and your mom not only speak to a loan agent but also to an attorney who can advice on ways to take title that will help you and your mom accomplish your goals. Unless your mom will also make the loan payments for you, chances are that she will expect you to pay the loan and you will probably want to be adequately protected should something happen to your mom (i.e., who gets the house). That's why it is important to discuss ways to hold title prior to the purchase.

Feel free to call me if you have any questions.

Ute Ferdig
916-751-1267 begin_of_the_skype_highlighting 916-751-1267 ur answer here...
0 votes
Rebecca, also I would call Ute above as she is a market expert and will help guide you through the process.
Flag Wed Jul 18, 2012
Michael Smith…, , Roseville, CA
Wed Jul 18, 2012
Yes! Investment purchase all the way, unless she is moving in with you. The other approach may be a non-occupying co-borrower in which all three would qualify together. Done in that fashion, the down would be 3.5% and FHA rates are 3.5% today.
0 votes
Patrick O'Ha…, Agent, Citrus Heights, CA
Wed Jul 18, 2012
Rebecca
As everybody has said, there are several options depending on
what it is you are trying to accomplish.
If you and your husband are qualified to purchase, but your mother
is offering to help you could buyer it as an owner occupant FHA buyer
with 3.5% down payment, either with your mother on title or not.
If she is buying a home for you to live in, because you cannot qualify
to purchse due to credit issues then she would be buying the property
as an investment as she would be the sole owner and she already
owns her residence. Whether she charges you rent or not, it still is
a non-owner occupied property so would be financed under the
guidelines used for investment property-----unless you could classify
it as a second home..... Lots of potentials and if you want accurate
answers I would suggest that you all get together and arrange to
sit down with a good lender and explaining your situation and what
you are attempting to do would get you the most solid answer to your
question. We would be happy to refer you to a lender who could
assist you with this if you do not have one currently; and if you have
a lender, rely upon their expertise as that's what they do for a living.
Good luck
0 votes
Mike Schubert, Agent, Sacramento, CA
Wed Jul 18, 2012
if she buys and finances the house under her name it will, in all likelihood, be considered and investment property. the down payment is higher than FHA and credit qualifications are higher. She will have to qualify with both mortgage payments being counted against her income. Another possibility might be to have you and your spouse apply for the loan with your mother-in-law as a coborrower. It's best to check with a reputable lender to verify before you get into escrow. I'd be happy to help.
0 votes
what would my husbands credit score have to be to be able to put her as a cosigner?
Flag Wed Jul 18, 2012
, ,
Wed Jul 18, 2012
This depends on how she structures the purchase,

If she is purchasing it as a nonowner (rental) than it would be investment. This will require 20-25% down payment.

If you and your husband are able to go on the loan with her, then it would be considered a primary residence as you would be living in the property. You can then put as little as 3.5% down with FHA financing.
0 votes
what credit score would my husband have to have if he were to go on the loan with her?
Flag Wed Jul 18, 2012
, ,
Wed Jul 18, 2012
This depends on how she structures the purchase,

If she is purchasing it as a nonowner (rental) than it would be investment. This will require 20-25% down payment.

If you and your husband are able to go on the loan with her, then it would be considered a primary residence as you would be living in the property. You can then put as little as 3.5% down with FHA financing.
0 votes
Alison Hillm…, , San Francisco, CA
Wed Jul 18, 2012
Hey Rebecca,

Are you asking if this is a good or bad idea?

Cheers,
Ali, Community Manager
0 votes
well im basically asking, if its true that it would be considered an investment property. because they said it changes the amount of the down payment and something like if its 55 miles away from her primary, then it wouldnt be an investment. im just really confused and not up to date with the real estate laws...
Flag Wed Jul 18, 2012
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