Rental Property Investor · Montgomery, AL · Member since 2016 · 179 posts · 188 votes
Hi bp,
So I am looking for some clarity on how a certain type of partnership works financially. I'm not sure what the term is for it- but its basically the equivalent of a parent co-signing on their childs car. The parent and child both own the car but the parent doesn't actually pay anything towards it or do anything- and they were just using their status basically to help get the loan.
So when that ^ happens with two partners how would that work exactly? My main wonder is how it would affect the "Parent" in this scenario if- lets say they wanted to go get a loan somewhere else? Does the loan that was shared between them count as debt against the parent too?
Lender · Powell, OH · Member since 2016 · 97 posts · 64 votes
8y
From a business/ profit perspective you can structure the partnership however you want you want. It would be up to the two partners to agree on the terms of the arrangement and ideally put it all in writing.
From a future loan qualification perspective this monthly payment will count against the debt to income ratio for all parties for future loans based on this bank/ car/ mortgage payment being reported to the credit bureaus. If their income is high enough it doesn't really matter. If this is going to eat up all of their available income and prevent them from qualifying to buy their own house/ car in the future you should probably figure out another way. (If it is a car loan and they can show that they are not making the payments some mortgage lenders will be able to ignore it)
Lender · Powell, OH · Member since 2016 · 97 posts · 64 votes
8y
From a business/ profit perspective you can structure the partnership however you want you want. It would be up to the two partners to agree on the terms of the arrangement and ideally put it all in writing.
From a future loan qualification perspective this monthly payment will count against the debt to income ratio for all parties for future loans based on this bank/ car/ mortgage payment being reported to the credit bureaus. If their income is high enough it doesn't really matter. If this is going to eat up all of their available income and prevent them from qualifying to buy their own house/ car in the future you should probably figure out another way. (If it is a car loan and they can show that they are not making the payments some mortgage lenders will be able to ignore it)
Rental Property Investor · Montgomery, AL · Member since 2016 · 179 posts · 188 votes
8y
@Josh Engelhart Thanks for your response, I think that cleared up what I was wondering. Do you know how it works if two partners buy a house like my scenario, but then they want to split it off to where just one person has sole ownership? Do you have to wait a certain amount of time to do that? Or is it possible that the mortgage could get called due?
Lender · Powell, OH · Member since 2016 · 97 posts · 64 votes
8y
If you are on the mortgage you need to be on the title to the house. If the bank were to find out at a later point in time that one of the people was no longer on title or that ownership was transferred to an LLC they would be able to call the full note due.
Rental Property Investor · Montgomery, AL · Member since 2016 · 179 posts · 188 votes
8y
@Josh Engelhart Idk if you'd know this but do you think it is very likely that a bank would do that if you've been just steadily making your payments on time? I know I have heard this topic ( at least regarding LLC's) on the BP podcast before. What I basically gathered from other peoples testimonies is that banks rarely actually call notes due over things like that.
Lender · Powell, OH · Member since 2016 · 97 posts · 64 votes
8y
If it's a family/ close friend type deal it's probably easier to just leave everyone on title. All of the liability is based on who is on the loan and you won't be able to change that unless you pay it off or refinance. The lender probably wouldn't ever find out and/ or care if you were paying on time. If they do you would either need to refinance or come up with all the cash to pay if off, which would really suck.
I would personally want to stay on the right side of the line. It will get more important the bigger you get.