What kind of partnership agreement is this?

Question

A few years ago, my parents placed my name on their mortgage and title so that if anything were to happen to them, there would be no issues about me getting the house. I am trying to buy my first investment property but my name on their mortgage is making it difficult to secure a loan for myself because my DTI is too high.

My parents pay their mortgage and I have documentation showing that they are the only ones that have ever paid on it and I have never touched it. The lender wants me to also have something in writing showing that my parents have legally agreed to pay the mortgage payments. If I have that documentation, they can treat my parent''s house as a rental property.

I just need to know what kind of agreement I have with my parents so I can use the correct template and get the documentation together.

My parents are in the process of refinancing their mortgage and removing my name completely so I don't run into this problem in the future but that will take some time and I need this done ASAP because I have just gone into contract.

Eamonn McElroy · Answer

The cheapest, easiest, and fastest way is just to ask the bank exactly what they want to see....

Myles Kennison · Answer

@Eamonn McElroy Yes I agree but this happened long before I knew anything about real estate and even thought about investing. My parents are relatively new immigrants that didn't know the nuances of this deal.  The lender understands the situation but they just want documentation they can show their boss.  We are all better educated in this subject now and are correcting it but I'm just trying to figure out how to create the proper document detailing our situation.

I created a loan agreement from a template stating that I have no obligation to pay the mortgage and my father has assumed all responsibility but I just don't know if that's the right answer to make this deal happen.

Eamonn McElroy · Answer

Not to lay it on...but this is a great textbook example of why you should consult your advisors (the ones that you pay) before you do something like this.

It might have made a lot of sense for your parents to put the house into a revocable living trust, which would have avoided all of these issues, and when they passed, the house would bypass probate, be transferred to you, and you would receive a step-up in tax basis.

Hopefully your parents filed gift tax returns for the year of transfer if they had an obligation...  Hopefully you'll file gift tax returns upon the transfer back if you have an obligation...

Christopher Smith · Answer

The land of intended consequences

What kind of partnership agreement is this?

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