Real Estate Home Mortgages/Private contract sale
QUESTION: Dear Eric
I purchased a house several years ago and was renting part of it to a close family member. After a few years, I purchased another house to simplicity and regain my freedom.
Since then I did sign a contract for the family member to buy the house. The contract simply said the family member was to make all of the payments;which included the mortgage and my investment, in addition to utilities, of course. Nothing was recorded or legalized other than signing the paper. In fact, neither of us has a copy of the contract, I would have to check with Community Actions to see if I gave them a copy.
It has been several years and relations has deteriorated. Would late payments be grounds to terminate the contract? If so, should any money be refunded?
I noticed you referred another person to FHA or HUD for assistance in purchasing a home. Would you please explain the process, as well as what needs to be done and/or not done. What down payment and credit score would be needed. I want the best solution for both sides and willing to assist them if I can; but really need the house out of my name.
I appreciate your help, and please cover related topics in case of missed something.
ANSWER: Hi Connie,
First, you have to realize that an unrecorded contract is still a contract, and it can be legally enforced. For this reason, try to locate the original contract, since it may have included some terms that you no longer remember.
The second thing that you need to do is to obtain your own credit report. Since the mortgage on that house is in your name, and since you are saying that your relative has been slow in making the mortgage payments, you need to know to what extent it has affected your credit score.
Your relative can apply with any FHA lender for a mortgage to purchase the home and transfer the title from you to him/her. The steps to be taken are similar to what you went through when you purchased your home, namely:
1. Prepare a purchase agreement showing the terms of the sale. You can obtain a pre-printed purchase agreement where all you need to do is fill-in the blanks in any stationery store and even on the internet.
2. Open a sales escrow with any escrow or title company. The escrow officer will formalize the agreement based on the one you have already signed. The buyer will be asked to put down an earnest money deposit, typically 3% of the purchase price, but not less than $1,000.
3. The buyer applies with an FHA lender, and will have to qualify for an FHA loan based on income and credit. The FHA down payment is 3%, but the buyer can lump the closing costs with the loan, and end up not putting a down payment.
4. The FHA lender and the escrow officer coordinate the steps that need to be taken - appraisal, title commitment, termite reports, etc.)
5. Finally, the Closing. The seller gets the sale proceeds, and the buyer gets the title to the property.
It is not an overly-complicated process, and I wish you all the best with it.
---------- FOLLOW-UP ----------
QUESTION: Thank you, Eric, for you response. I do understand that agreements, written or verbal, are binding contracts under the Universal Contract Code. I assure you the "contract" simply said the Family Member was responsible for all payments and expenses related to the property at the specified address. It was very basic and only a few lines. The only terms possibly specified would have been the amount of the mortgage and the starting date. It was merely confirmation that we did have an agreement.
Given the above terms, would any money need to be returned to the family member? There was not a down payment or any cash that was exchanged, but I just want to make certain I would not have any out-of-pocket expenses.
Do you know the answers to the following or where I might find the information?
Would FHA be the best place to apply for a house loan?
What is the requirement difference between FHA and a bank?
Is FHA the only government agency that helps new home buyers?
What would the qualifications/checklist be?
What approximate credit score would be needed?
I be willing to pay any down payment for them out of the proceeds. Thank you again in advance for you opinion and suggestions.
There is probably a slight advantage to FHA loans over conventional ones, as the underwriting is somewhat more liberal (making it helpful to applicants with spotty credit). To obtain one, you don't go to the FHA, but to any of the dozens of lenders who offer FHA loans.
An applicant whose credit score is below 620 will find it very difficult to obtain a loan - FHA or conventional.
As to your first question, I can't see any reason for returning money to the relative.