Buying a house with a VA loan
07/12/2008 12:00 AM
07/10/2008 7:42 PM
Q: If I were to get a VA loan to buy my girlfriend's home, could she sell it to me for less than the appraised value of the home? And if so, would her income be considered part of my total income on the VA loan?
According to the Veteran's Administration, which backs VA loans, there is nothing in the rules that prohibits a seller from selling a home for less than the VA determined value of the property.
As far as using a girlfriend's income to help qualify for the loan, it is possible to do this, according to a VA spokesperson. “When a veteran obtains a loan with a person who is not his or her spouse, the VA is only authorized to guarantee the veteran's portion of the loan. This sometimes creates a problem for the lender.”
It doesn't sound as though your girlfriend is selling you her house. It sounds like she is selling you half of the house, but you are hoping to qualify for the purchase with her. If you buy half of the house from her, and then you refinance the entire purchase, will there be enough money to pay off her old loans on the home?
There are other considerations as well. In some states, your “purchase” of your share of the home will cause you to pay transfer taxes and other costs. Your girlfriend, in some circumstances, may be considered to have sold part of the home to you for federal income tax purposes. If she has a gain from the sale of that share and she has not lived in the home for two of the last five years, she might have to pay capital gains taxes on the sale to you.
There may be other issues for you to consider, and you need to sit down with a good mortgage person to go through them. You may also want to talk to a real estate attorney or estate planner to review your options in moving forward. Since you are not married, you might want an agreement between the two of you to cover the many issues that may arise if you break up – division of the equity in the home, who would get to keep the home, and forcing the person that stays in the home to refinance to pay off the old debt.
Help with down payment
Q: I have a couple who want to buy my house, but they have nothing to put down. Is there a way for me to help them with their down payment? I'd increase the selling price by 10 percent and they could finance the rest. I would get my original sales price. Can I order myself a cashier's check for proof of deposit of the earnest money for their lender? That would show that they put down the 10 percent.
Great idea – but you can't do it this way. The reason lenders want to see evidence of the down payment or earnest money for the purchase of a home is to see that the buyer has some investment in the home. In the past, lenders would finance 100 percent of the purchase price. These days, 100 percent financing is very hard to get.
What you are trying to do would amount to a fraud on the lender. You'd try to deceive the lender into believing that your buyer had put down money that they had not. Then you would participate in the fraud when the buyer applied for a 90 percent mortgage on your home when in fact the mortgage amount would be for the full purchase price of the home.
Finally, if you inflate your sales price, it's possible the property might not appraise in value. That is to say, if you were originally selling the property for $100,000 but inflated the price to $110,000 to “assist” your buyer, the appraiser might still come in and say that the property is only worth $100,000. If the buyer is financing 90 percent of the purchase price, the lender would only loan the buyer $90,000 to buy the home. You would end up in the same place you are now.
Don't attempt to do anything that isn't above board. The lender will want to see the source of the buyers' earnest money and obtain a copy of the cancelled check. Your buyers would not be able to prove that they had the 10 percent down payment or earnest money and the check would have reference that it had come from your account.
There are legitimate ways for you to assist a buyer in the purchase of a home. Some loan programs will allow a seller to contribute 3 percent or even 5 percent of closing costs that might be paid by a buyer. If the buyer can qualify for the loan, your closing cost assistance may be enough. Loans backed by the Federal Housing Administration (FHA) will allow you to put down 3 percent of the purchase price, as long as the buyers can qualify for a 97 percent loan.
You and your buyers should sit down with a reputable and qualified lender to see if any of these options would work.
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