If you need a cosigner for the credit line you cannot afford to purchase this house.Many people purchase investment properties so I agree that she can sell it as a investment property and may have no consequence to you.
Forget about assuming her mortgage and also if you do a private deal the bank will insist on doing an appraisal.I know this as I sold a rental property to one of my tenants and because it was on no MLS they use the appraisal value to determine the mortgage the buyers could get.If she really wants you to purchase at a fair price then she can gift you the 5% plus closing cost.We have had this discussion with a tenant of ours who wants to buy but has no downpayment as well.We are willing to gift them the 4.% it would cost us in RE fees and the banks are 100% ok with this .
Everything you have written indicates that you are going to buy the place even if it's an awful idea.
Could I suggust that while you are thinking about how your going to do that, that you also plan for the worst?
There is nothing stopping you from seeing if you can find another place, set up another dayhome, set up an emergency fund, and or find other work for your wife, and additional work for yourself. As said before, you can't control the move, but you can control some of your own options.
After reading the replies on here and talking it out with my wife and going over and over our finances and seeing where we can and can't cut back, we've come up with an action plan. Borrowing the money for the down payment just won't work. I mean yeah if everything was set in stone we may be able to swing it each month but it would be tight and we would run the risk of any unexpected expense throwing the whole thing off.
So instead, we are going to contact the land lord and see how long she could wait to sell. We would like her to wait at least a year or a bit more. If she can agree to that we will try to save the down payment over the year or so. Now I understand that is also a major problem (to save say 12K in 12 months). But we are thinking if we can sell our car and use the money to pay off our car loan, then we would have an extra $400 per month right there to put towards the savings. This on top of the fact that we could get a Line of Credit with a co-signer, and move all our high-interest rate credit cards to a lower-interest rate line of credit to save on our monthly payments. This would put us close to a $600/month savings. Also while this is going on If I or she could find a part-time job for the evenings and weekends would hopefully put us close to the $1000k/month we would need to save.
The great thing about this plan is that if we decided not to buy the house or have to move, we could afford the increase in rent a new house may have and we are still making progress on getting into a better financial position to buy a house eventually. The drawbacks would be if we can't sell the car it's hard to make good headway and if she can't wait to sell we may have to move very soon and it would be hard to make the increased rent payments in a new place before we can cut our costs back or increase our income.
Last edited by novasaver; 2012-10-21 at 10:22 AM.
Very nice plan!
You may encounter some problems on her end - in a divorce, sometimes people need or want to sell assets for cash immediately to settle other issues.
You might want to enter into a formal rent-to-own arrangement with her.
Hopefully this will work out and, like you said, even if it does not you are making very good headway in any case. It must make you wonder why you didn't make some of those new choices earlier!
I can share experience on the rent to own scenario as well.This is our experience with TD Bank , same tenant who wanted to buy asked us about rent to own.TD bank told us Tenant had to deposit a monthly payment into a JOINT acct with us and this had to be set up minimum 12 months at end of 12 months TD bank would take this balance and apply as the down payment for the tenant on the house.We thought we could just credit them 12 months rent as a down payment but this is not the proper way to do rent to own.I never realized the bank actually has these things set up ,the advantage of dealing with the bank from beginning is they qualify the tenant and they set up the payment schedules etc.
I still think if you need a cosigner for a credit line this won't work for you as it shows weakness in your credit ,have you been turned down by your bank for a consolidation loan already?
We tried a few months ago to get a consolidation loan and the bank(s) said not unless we had a co-signer. Our Mortgage Broker reviewed our accounts and our credit last week. According to him, they can give us a deal as long as we have the 5% down. Basically he said that my credit was good, but my score was not and my wife's credit score is good but she's not the breadwinner so they need to average it all out between the two of us and in that case they can make us an offer/deal. We just needed the 5% down plus closing costs.
The problem with my credit score is that I was a few 30-days late on a couple of credit card payments and that all my credit cards are maxed out. That said within the last two weeks I have made those late payments and now I'm not behind on the monthly's, they have just not shown up in the credit file yet. But it will take my score awhile to recover.
We had a daycare person drop out all of a sudden last spring and we had been unable to fill that spot until recently (new daycare kid coming on Dec. 1st) So we had been using the credit cards to get us through since the spring. Once the new child starts we are actually $200/month ahead of our expenses, without we were about -$300 vs expenses a month.
Our plan since earlier this year was to save and save and save until we got out of debt and had a down payment saved, while renting here. But the unexpected drop in her income in the spring, and now the selling of this house has caused the problem we are currently facing. It's been a rough few months but we were just starting to get some traction in our plan. I know people will say you should have prepared better years ago, but you do what you can at the time. Every $ that came in was going out to cover the bills at the time and there was no way to bring any more money in to save for problems like unexpected bills and such.
All we can do is move forward how ever this turns out now.
In Ont a renter does not have to move out because their unit is being sold. The buyers have to give 60 days notice to you if you are on month to month or wait until the end of your lease if you are on a year contract and proof that they are buying and they want to move in themselves or a close family member. As she said they are selling their investment properties, chances are it will be bought as an investment and you won't have to move.
Another thing to consider in all this is the total cost of buying your home with only 5% down. We have this curious habit of saying "I'm buying this house for $185,000," whereas in actual fact if you take out a 25-year mortgage with 5% down, assuming 3.2% interest (which is a decent current rate but is bound to go up), you're really going to buy your house for about $265,000. That's what you're going to spend on principal plus interest.
If you were to put down 25% you'd pay about $248,000, a savings of $17,000 in interest. And if you took out a 15-year loan with 25% down instead of a 25-year loan you'd pay about $221,000, a savings of $44K. (Note that I used a US-based calculator for these numbers; I think Canadian mortgages are calculated differently, but for illustration purposes these give you an idea of what I'm trying to get at).
The point is that if you can step back to think beyond your immediate crisis, there may be advantages to passing up this house and waiting until you have your finances in order. I didn't buy my first home until I was in my late 40s, but that gave me plenty of time to save up for a 25% downpayment. Plus I was in better financial shape overall, allowing me to take out a 15-year mortgage (which I'm on track to pay off over less than 10 years).