Almost ready to close a loan but 2 snags...

[Chad W.]

My grandmother and I are joint tenants on our home. I originally sought a local mortgage broker to take out a new first mortgage on this home in my name.

Knowing that the I was intending to invest most of the proceeds in rental properties, my lender suggested that we get the loan in my grandmother's name for a host of reasons that both me and my grandmother are comfortable with.

The problem we are facing now, after paying the appraisal fee is satisfying the underwriter. They are demanding access to her tax returns but the problem is she does not file taxes because her income is less than required to do so. The income is Social Security, VA benefit (military spouse of a veteran who passed away) and a civil service check. Now the lender is asking for my tax guy (my grandmother doesn't file taxes) to write them a letter explaining why she doesn't file taxes and so on. Naturally he is balking at returning my calls because this request is frankly, dumb. Also we are having trouble getting current award notices from the VA as my grandmother has trouble with automated phone systems and I live several miles away and work during VA business hours.

Has anyone had to deal with something like this? Should I just can it and have our lender get the loan in my name instead? I was told that if I did I would pay higher interest as the home is not my primary residence, but still, this all seems like a huge hassle.

[Jon Holdman]

That's should be a "shouldn't" in the last line of my post.

Honestly, I'm personally not OK with what you're doing, for two reasons. One is that it really is you that's borrowing the money, which you intend to use for investment purposes. Since its not your residence, you really should not be getting an OO loan. Second is that your are effectively "selling grandma's house". If this plan goes bad, and you cannot repay the loan, she's going to be out on the street. I understand the concept of getting equity out of properties. But I think a house you live in, and especially a house grandma lives in, is a special case. A free and clear house means she always has a place to live. A mortgage means someone can take it away if you cannot pay. I'm sure I don't know your full situation, but please be very sure you can make the payments on this mortgage no matter what happens. I remember reading sob stories in the paper a few years back about people who were being foreclosed on when they should have been burning their paid off mortgage. But they had HELOC'ed and refi'ed their home, spent the money, and now couldn't pay. They've already sold it. There's no sob story involved.

OK, ranting over.

You may still have problems getting this loan to close just in her name. If her income is so low she doesn't need to file taxes, then is there really enough income to qualify for the loan?