Help with creative-financing for investment property

[Ryan Jopson]

Good evening, I'll cut right to the point. I am trying to obtain a mortgage for a 3-family investment property. I do not have enough capital to cover the 25% down, but am grateful my father has offered to cover the additional funds needed. However, the property is already UAG, (my father will purchase if I fail to obtain financing) so I do not have enough time for the gift funds to be seasoned in my bank acc. I am wondering if its possible for my father to obtain a mortgage without a due-on-sale clause, and then quit-claim the title into my name. He would carry the mortgage and ultimately I would pay him the PITI. I understand it is rare for banks to offer loans without these clauses. If this is the case, is it still possible to transfer title (legally and ethically speaking) into my name since I am his son. I've done a bit of research and from what I understand this is allowed because I am his child.

Any feedback provided is much appreciated on my behalf. Thank you. Also, I am not 100% certain if this is the right topic for this post. My apologies to the moderators if so.

[Mike H.]

If you're doing a conventional loan, I don't think you're going to have any luck getting a lender to drop the due on sale clause. The whole trick with conventional loans is that they have to follow fannie mae or freddie mac guidelines so they can be sold if desired.

Now if you weren't doing a conventional loan and just went to a local bank that would do it as a portfolio loan, they would be much more likely to waive the seasoning of the funds - especially if you could get your dad to co-sign on the loan.

That would be the best way to do it. Have your dad co-sign on the loan. Then you basically get a boost to being able to get the loan in your name. And your father avoids having any income tied to his stuff. 

Unfortunately, if you go with conventional, even with a co-signer I don't think they'll allow you to qualify without that money being seasoned.

I do think there's a red flag there with what you're proposing. If your dad gets the loan in his name and then quit claims the house over to you, that quite possibly would be considered a taxable event.

I do not believe your statement that parents can give their kids stuff with no tax hit.  Maybe there is some limit but I would guess that limit is not high enough to have someone give their kid a building/house and not be taxed.

You may be able to make the argument that if you're taking over the loan then the gift is not the value of the house but the value of the equity. And that you can probably play around with to show a lot less.

But if he keeps the loan in his name and quit claims the property to you, I believe that will be taxable as a gift of the entire value of the house and you'd be hit with considerable taxes there. In that scenario, you'd be getting the house and he'd be getting stuck with the loan.

And that brings up another issue with that. If he has the loan but you are on title, I don't know how that affects who can write off what. Can he write off mortg interest? I don't think you could unless you did some sort of wrap mortgage with him.

There are a ton of scenarios here.

My suggestion would be to go to a local bank and have them do a portfolio loan on the residential side of the bank. i.e. they'll keep the loan in house so they won't necessarily have to follow all the fannie/freddie guidelines - which means they'll let you use your dad's money without being seasoned.

And then to help you qualify for the loan, have your dad co-sign. Then you get the loan in your name. The bank has two people to go after and one very good one (your dad). And everything is pointing to the right person in terms of taxes and the like - i.e. you.