Low credit score nearly inspires mortgage mistake

DEAR BOB: About three years ago, my son wanted to buy acondominium. He was earning about $75,000 per year as a CPA working for a”big six” accounting firm. However, his FICO credit score washorrible, around 600, due to his mistakes (failure to pay credit-card bills)while he was in college. So I agreed to take title and obtain the condomortgage in my name. Since then, he paid all the mortgage payments on time. Irecently signed a quitclaim deed adding him as a joint tenant with right ofsurvivorship. When he approached the mortgage company about transferring theloan to him so he can improve his FICO score, he was told he would have to paya 1 percent assumption fee, which will be about $3,600. He says he wants to dothis so he can deduct the mortgage interest and property taxes on hisincome-tax returns. Do you think he should do so? –Dan F.

DEAR DAN: No. As a CPA, your son should know he is entitledto deduct the itemized property tax and mortgage interest deductions he pays onhis tax returns if his name is on the condo title. His name does not have to beon the mortgage obligation to claim the interest deduction.

Purchase Bob Bruss reports online.

Millions of U.S. homeowners have purchased homes”subject to” an existing mortgage. If they fail to make the payments,they can lose their property by foreclosure. That is your son’s situation.

What matters is he must be on the title and be legallyobligated to make the payments or risk losing the property. When you added hisname to the title, he became eligible to claim the income-tax mortgage interestand property-tax deductions.

Other than improving his FICO score, I see no advantage forhim paying $3,600 to assume that mortgage obligation.

EACH MORTGAGE LENDER LOOKS AT LEASE-OPTIONS DIFFERENTLY

DEAR BOB: When a tenant-buyer goes to a mortgage lender toget a loan to exercise a lease-option, does the bank look at the optionconsideration money and the rent credit earned during the tenancy as part ofthe down payment? I am told the loan-to-value ratio will be based on the optionpurchase price rather than the current fair market value –Joel D.

DEAR JOEL: Having been involved in many home lease-optionpurchases and sales, my experience has been that each mortgage lender treatslease-options differently.

When a lease-option buyer obtains an adjustable-ratemortgage, I’ve found the mortgage lenders are the most flexible, giving fulldown-payment credit for the buyer’s option money and the rent credit earnedduring the tenancy period.

The buyer should consult at least a half-dozen mortgagelenders to obtain their specific mortgage terms for exercising a lease-option.This is a situation where I highly recommend consulting an experienced mortgagebroker who should know which lenders are the most flexible in such situations.

PRESCRIPTIVE EASEMENTS DON’T REQUIRE PROPERTY TAX PAYMENTS

DEAR BOB: About a year ago, you had a letter regardingprescriptive easements over private property. As I recall, you said one of theimportant requirements is whether the owners were paying the property taxes.Our private road travels through several other properties before reaching thepublic road. There are no recorded easements. We each pay the property taxes onour separate parcels. The property is in a rural area, outside the city. Do wehave a prescriptive easement? –Delores R.

DEAR DELORES: I think you confused obtaining title to anentire property by adverse possession with obtaining a prescriptive easementover a neighbor’s property.

Adverse possession to obtain title to an entire parcelrequires open, notorious, hostile (without permission) and continuous use ofthe property, plus payment of property taxes, for the number of years requiredby state law.

However, obtaining a prescriptive easement only requiresopen, notorious, hostile and continuous use for the required number of years,but without payment of property taxes. For full details, please consult a localreal estate attorney.

The new Robert Bruss special report, “Probate PropertyProfit Secrets Revealed,” is now available for $5 from Robert Bruss, 251Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instantInternet delivery at www.BobBruss.com.Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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