crazy titlework instead of mortgage

[denlocke]

What is the name of your state?WA

We are trying to buy a home from a family member but he is willing to carry part of the loan privately. We need to get a loan for the other half. A friend of mine who is a loan officer suggested that we do it this way:

1. Grandpa puts us on the deed as owners
2. We refinance the portion that we want to cash out (the half we need a loan for)
3. Grandpa quit claims himself off of the title
4. (Optional?) Grandpa puts a lien on the title for his private loan amount

I am very nervous about this and I have some questions. First off, the form we were given to have Grandpa put us on the title is a Quit Claim Deed. If he "quits" the deed to us, does that take him off at the same time? Should we be using a different form to add ourselves instead of a Quit Claim Deed? Also, what is this transaction going to do to our taxes? Will we have to pay some sort of tax on the private loan amount?

 

[HomeGuru]

What is the name of your state?WA

We are trying to buy a home from a family member but he is willing to carry part of the loan privately. We need to get a loan for the other half. A friend of mine who is a loan officer suggested that we do it this way:

1. Grandpa puts us on the deed as owners
2. We refinance the portion that we want to cash out (the half we need a loan for)
3. Grandpa quit claims himself off of the title
4. (Optional?) Grandpa puts a lien on the title for his private loan amount

I am very nervous about this and I have some questions. First off, the form we were given to have Grandpa put us on the title is a Quit Claim Deed. If he "quits" the deed to us, does that take him off at the same time? Should we be using a different form to add ourselves instead of a Quit Claim Deed? Also, what is this transaction going to do to our taxes? Will we have to pay some sort of tax on the private loan amount?

**A: better way is to buy the property at the agreed upon price via a new mortgage for the half and have Gramps take a second mortgage for the rest.
EX. purchase price 100K, new loan $50K, second mortgage $50K.

 

[denlocke]

The house is 180,000. Grandpa needs 83,000 to pay off a home equity loan he pulled. The rest he is willing to finance privately to us at a lower interest rate. So would he just sell the house to us for 83,000 and then make up a private contract for the rest?
Another consideration is that we don't have a down payment. We don't want to end up paying PMI, even on just 83,000. Would we have to pay PMI if we appeared to buy a home with immediately over 50% equity in the home?

 

[amortgageman]

Quite a creative scenario your broker has going here. I had a similar situation with a borrower not too long ago where the lending requirements to purchase was 5% of their own funds. The home was owned free and clear but the applicant was not on title. He did not have the 5% of his own funds, and the only way to get this done was to add his name onto the title. We were then able to refinance the property and make the deal work that way.

If Grandpa quit claims the property to you and you do not get a mortgage approval, then guess what.........You own the property and he is still obligated to the loan.

Another approach if you are required to come up with 5% to purchase, would be to have someone else deposit the required amount into your checking account and have the broker go with a "no seasoning of funds lender."

At 50% loan amount, the PMI is not required.

You are having Grandpa's attorney helping on this, aren't you? Strike that, silly question.

 

[denlocke]

Thanks for the warnings and advice. We've already checked our credit for a run-of-the-mill conventional loan and we would have no problems getting approved for a loan. We just need to make sure that we can actually make the payments, so we are looking at doing it this way (and we have no down). But back to my original question: if we proceed this way, should Grandpa be filling out something different than a Quit Claim Deed to get us deeded on? We got the form through a title company that works with my friend, the loan officer. But it seems to me that if Grandpa uses this form, he will "quit" his claim to us immediately and then we just refinance and that is it (as far as his ownership goes). Is there different paperwork to get us deeded on? Or is this it?