 Rent
to own parents' home
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 Dear
Dr. Don,
I am thinking of purchasing a home that I currently
rent from my parents. The home was assessed at $125,000 and they
currently owe $102,000. They are willing to sell me the house for
what they owe. Can they co-sign a mortgage for me to purchase a
house from them? I have a high debt-to-earnings ratio, which, as
of last year, only qualified me for a $42,000 mortgage. I would
love to be able to qualify for a mortgage, but at this point it
looks like having them refinance and then selling to me on a three-
or five-year contract is about the only way I can get the house.
Any advice you can provide will be greatly appreciated.
-- Andrew Acquisition
 Dear
Andrew,
I think your parents should structure a lease-purchase option for
you to buy the home. A portion of your rent would go toward buying
the home while the balance covers their cost of carrying the mortgage.
They can gift the equity they have in the home to you up to the
current limit of $11,000 per person $22,000 per couple per year.
Work with a real estate attorney
and tax professional to structure the agreement to meet the needs
of both parties while maximizing the benefits associated with a
transaction between family members.
Your parents could co-sign a mortgage note,
even though you are buying the house from them. The mortgage lender
doesn't care who you're buying the house from, it cares about the
loan-to-value and the risk involved in extending credit to you and
your parents. I don't like this option as well because you're putting
your parents' credit at risk to finance your goals. When a lender
requires a co-signer, the co-signer is taking on a credit risk that
the lender refuses to accept. The FTC's electronic pamphlet Co-signing
a Loan, is required reading for your parents before they even
consider this step.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "Financing
a home," "Saving & investing" or "money."
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