Some tips for taking back a mortgage
Q: Please comment on the pros and cons of taking back a mortgage. My husband is attempting to sell his deceased father's house and was asked to take back a mortgage. It appears the house may not sell otherwise. If we proceed, what steps should we take to protect ourselves?
A: Why won't the house sell? Perhaps it's not in good enough condition to qualify for a bank mortgage? If so, one solution is to fix the place up. If that's not feasible, the property might be priced really low for an all-cash buyer. Or yes, your husband could take back financing, holding a mortgage and collecting the purchase price over a period of years. In that case, the big question is: Will the buyers make their payments?
To protect themselves, well-run banks like a 20 percent cash down payment from the borrowers, an excellent credit report and proof of enough dependable income to handle the payments comfortably. Given today's record low interest rates, buyers who could meet those standards would probably go for a regular bank mortgage. As they aren't, we have to assume they fall short. Then your husband should consider whether he's willing to lend that much money to strangers when a bank wouldn't.
Take the would-be buyers' documents and figures to an accountant for advice. It would also help to visit their current home and see how they take care of it. Their housekeeping might matter if someday your husband finds the house back in his hands. Whatever is decided, you want your lawyer's help in drawing up any contract and documents.
Have CPA explain rental depreciation
Q: Would you please explain to me how to determine depreciation for tax purposes on a rental home, including how long I can take that deduction?
A: I can't really explain depreciation without using a blackboard. As a real estate investor, you should have your own accountant. Your CPA will set up a depreciation schedule for you.
Removing name from title is easy
Q: I am currently on the title of my parents' house, along with my cousin who helped us purchase it. My brother, my cousin and I are on the mortgage loan. It is an FHA loan that was signed in July 1997. If I want to purchase a new home and not have this affect me, should I remove myself from both places or just the title? I would like to apply for a new FHA loan for my immediate family now that I am married.
A: It's easy to remove yourself from the title of the property. All it takes is signing a new deed. That won't relieve you of responsibility for the mortgage, though. For that, you must consult your lender. With an FHA loan, if the others can prove financial qualification to carry the debt themselves, there's a procedure to free you of any further liability.
Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at [email protected]