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Ok. Here's the deal. My wife's sister is having trouble paying their house payment because they have a ARM loan. I guess they have reached the year limit on the loan and the interest rate shot up a lot on them. they both have bad credit. She's went to banks and mortgage companies and the best rate they can get is like 11%. My sister in-law asked if we could buy their house and rent it to them. We've both got great credit so it shouldn't be a problem getting a loan. The sister in-law owes like $110K on the house. How could this impact my/our credit score? I really don't want to add more debt to my credit report and I'm affraid it will have a negative impact on my score. They want to buy the house back after they improve their credit score. How long could that take? If I sell the house back to them after say 5 years, will I be able to sell it back to them for what they owe? I don't want to get into trouble for selling the house below it's value and that's something to consider. I'm not looking to make money from them, just help them out. I do plan to get into real estate real soon so I'm affraid this will hinder my plans. Any advice would be great. I don't mind helping them out but I don't want it to hurt our credit or future purchases.
 

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Okay, short answer.

DON'T DO IT!! unless you REALLY REALLY Trust them. If the house is worth 125K or more, not a bad investment. Just because you can do it, doesn't mean you should.

It will have an impact on your credit score, but the debt would be offset by the income generated.

If you do this some things to consider.

Rent needs to cover
1. Mortgage Payment
2. Property Taxes
3. Insurance on property
4. Any other state or local fees.

Good luck
 

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One problem I see is that if you extend yourself in that direction, and a bit down the line, you need to get a loan for any reason, you're SOL. Debt to income ratio is a booger to get around.

Oh, and regarding rebuilding credit, that takes years. AND only if you do everything right! ONE late payment and you're worse off than when you started. And the rebuilding process takes 5 times as long if you're not extremely good about it.
 

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If they can't make the house payment, can they make the rent payment. In some states it takes a year, minimum to evict, not to mention the hard feelings if they can't pay you and you have to sell it to get out from under the payment. Bad idea, but if you have to do it, discuss all of the options and get a written agreement, signed.
You may be better off to just loan them the amount that they need to make the payment each month.
 

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Yes, this plan could help you both...

I would ask them to provide a budget and address concerns about how they will pay you in a timely manner IF an emergency shows up...

Are you willing to let this issue become something that you would kick your family out of that house if they do not pay? If the answer is "no" then don't do it.

Likewise, if you cannot manage the payment of the second house with your current income and assume the worst amount of debt, then this may be unwise.

My tipping point in this decision is because your family members have poor credit and make bad decisions. If they can't afford what they've got, then their consequence is to find something within their means until they learn the difficult lesson to manage their finances.
 

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If they don't make the payment on time, do you have it in you to "kick" them out? I know it's the right thing to do when talking about it but just to much involved. Keep in mind they do have bad credits. When I purchase my house, I had an ARM, I knew it was going to expired in 3 yrs. so the one thing I did was to make sure my credit was good, and no late payment. The mortgage company actually call me and ask to refinace with them.
 

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advice.... hhhmmmm... rules of business involving family... 1) Never do business with family, they will screw you! 2) Loaning money to family is basically giving it to them, you will never get it all back. 3) If you do business with family, make sure your foot will reach your butt so you can kick yourself when you realize you should've followed rule number one...
 

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Basically, can you afford two house payments? Assuming you currently have a house payment. As rholland said if they are having trouble with the house payment can they afford the rent. What if they happen to miss a payment or not pay at all or one of them looses thier job. Or worse yet, decide to move into something else or noticed the extra income they have and buy other stuff. You would be the one holding the bag and your credit will be the one that suffers unless you can afford two house payments. This could ruin great family relationships. If they miss payments you will have to evict them, because the house will need to be paid for by someone who could pay the rent.
 

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Discussion Starter #9
PTitan said:
Basically, can you afford two house payments? Assuming you currently have a house payment. As rholland said if they are having trouble with the house payment can they afford the rent. What if they happen to miss a payment or not pay at all or one of them looses thier job. Or worse yet, decide to move into something else or noticed the extra income they have and buy other stuff. You would be the one holding the bag and your credit will be the one that suffers unless you can afford two house payments. This could ruin great family relationships. If they miss payments you will have to evict them, because the house will need to be paid for by someone who could pay the rent.
Lots of good points in this post. Yes we can afford 2 house payments. We're still in our 1st house(been there for about 7 years) and we only have my truck payment and the house payment plus the normal bills. We paid the wife's car off early. The problem for them is that the ARM pushed their house payment up like $200 per month. The sister in-law has 3 kids so she stays home with them. Before that she worked as a stripper and made lots of money, but that didn't help her credit. She paid for everything with cash. Her husband got into credit trouble early in life. He had a loan or something he didn't pay off. He's a truck driver right now and makes pertty good money. They don't have any car payments just the house and normal bills. If the wife and I purchased the house we could get a better rate and a lower payment, something they could afford. Right now it's really hard on them with the high payment that will just go up next year. My ARM rate went up over 1% this year when it reached the end of the 5th year. I really thought we would have bought another house by now. That's one reason I did a 5 yr ARM. If I don't sell the house this year, I'll refinance and get a 30 year fixed loan or maybe 15 yr fixed. If it came down to it I could kick them out. Business is business and that's what it comes down to. They could rent another place and I would just sell their house. We would be buying it for what they owe on it. I would guess it would appraise for more than the $110K they owe. I would think $125K or more. It's got a good location and it's a nice house. I think the wife is going to push me into this since we just got through helping my mother when she lost her job, but that's another story. Thanks for the post guys. You've made many good points, maybe I can use those if I decide against buying the house. Keep the post coming.
 

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take out a loan on 110k in agreement that they put the house in YOUR NAME so if they screw you over you sell the house for more then 110k and whatever left over wipe you butt with it and it will be a lesson learned
 

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i agree with DRTYAZN, its never good to do business with family because they will eventually take your kindness for granted. and since they already have bad credit why dont they do a chapter 13.
 
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