Thursday, July 15, 2010

What to do about land contract?

My husband's parents have a mortgage on their house. They really want to move out of state and we would like to have their house because we are currently looking and we don't have enough credit history or job history to go through a bank. They need money to move. We want to just take over their mortgage but the payments are to high for us to afford. Could they refinance and maybe bring the payments down into an affordable range for us? Also does anybody have any ideas how we could get the money they need to move? Thank you!

1. You won't own the property until the end of the mortgage.

2. They can sell the property without your knowledge or consent.

3. Recording of Land Contracts may or may not be legally required in your area.

4. The payments you make (or don't make) aren't reported to the credit agencies.

5. If the current lender learns of this arrangement, they could call the loan as due payable in full if there is a prohibition of this type of arrangement.

6. What you are trying to do is to assume a current mortgage. Lenders haven't allowed that or written assumable mortgages for years. They've always required a new mortgage for new buyers. This prevents people from assuming a 4% mortgage when the nominal rates have skyrocketed to 8% (in those days). When J Carter was in office (late 70s), mortgage rates were around 16%. Think how much money lenders would have lost on assumable notes (I couldn't care less how much they lost)

7. Borrow the money for their move, but you'll have to meet the credit requirements and still make the mortgage payments on the house.

8. If they refinance, that might help. It would depend upon how much and the terms of the refinance.

They might be able too, it is hard to say. Most likely they already have it at low interest though. But, the new loan would have to be an investment loan, since they won't live there, and that could actually be higher then what they have now.

Unless they can afford 2 houses you will be preventing them from buying where they are going. With them not having money to move I doubt they would be approved to own 2 houses.

Sure buy it on a land contract or lease option.

I think you both may want to consider the lease option. It better protects his parents and gives you more flexibility.

Whichever way you go be sure to record a "memorandum" of contract in the court house. This will protect your interest in the property.

An additional benefit of either method is that you will be making regular payments. These payments can be used as proof as your ability to make payments, this processes is called seasoning. Be sure to keep good excellent records. Either make sure your check is cashed on time every time, or use a MONEY ORDER.

During this time, actively take steps to further improve your credit.

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