If you only own $200,000 of the house, what makes you think a bank will give you a home equity loan for $300,000? Or am I missing something?

Let's just assume the bank would go for it because the original owners would sign off on it.

So what you are saying is that both you and the original owners are willing to commit fraud? When you go for a loan, you have to show signed documents so that would mean both you and the original owner would be signing off on a fake document?

I'm confused as to how you think it is fraud. I am essentially suggesting owner financing on a partial interest in a property, refinancing that interest with a bank, and then purchasing the rest of the interest in the property through owner financing. The house has no current debt on it, so I don't see a problem with the H/E at $300k given the value of the house is well over $300k.

If I was the current owner of the house I would never do a deal like this. Btw, is it a relative? That's the only way this makes sense.

The difference is if you're buying with the owner financing, you only own $200,000 of the house, not $300,000, unless you're also putting down $100,000 in cash. Is the CO going to cosign the home equity loan with you?

The bank would never loan money to you on a property that you only "partially" own. They would require that all owners on title be on the financing,

You're grasping at imaginary straws.

You wouldn't have a clear title to GET The 300k. You could only be added to the deed, for pmt of 200k, but then you would be a joint owner. But no owner will put you on as an equal owner for a fraction of the value, that hasnt even been paid. Trying to get a 300k loan would mean there would be a line on property that would need to be paid off in order to then be sold the property by the owners for more money.

Each part of your proposal is not doable. Just one part, is like someone buying a car and financing 100 percent of it, and then trying to borrow money against the car at a car title loan place. The car title is encumbered so you don't have clear title with which to borrow against.

The COs don't have a mortgage, and I agree that it is theoretically doable, but it is a hassle for the sellers, and their main concern is the risk and how to mitigate it. However, they've had their home on the market on and off for thirteen years without any acceptable offers. My total amount is acceptable we just have to get a bit creative with the financing. They would co-sign for putting up their equity in the house on the H/E but they wouldn't be responsible for payments.

Co-signers are always responsible for payments.

I don't know how a bridge loan 'works', but it could be another alternative for you. I have a very small mortage, but am not sure of how much equity is in my house, but would assume equity would play a big part???? Anyone have an answer?

They wouldn't act as a co-signer, more like they sign off on putting up the collateral (their equity in the home).

Hopefully they are represented by an attorney.

Have you even talked to a bank or any lender about this?

"...currently would not quality for a mortgage..."

Why would you not qualify for a mortgage for this house? Generally, it is safer to not even use the full amount preapproved, so there is a financial cushion in case of job loss, etc. (We didn't even include one source of income equaling $43,000/year for our preapproval, for just that reason.) If you cannot get financing for this house, depending upon the reason, it might not be a good idea to try to scheme to buy it anyway.

You won't be able to get a home equity loan on a house that isn't in your name. And even if it was, you still need to qualify for a loan to get a home equity loan. And i can't see the owners putting the deed in your name for a 200k promise to pay on a home worth 500k.

Why don't they sell you the home for 500k, and you get a first mortgage for 300k, and they owner finance a 2nd for 200k? They would get 300k from mortgage co holding the 1st mortgage. Have a real estate atty draw the docs for the 2nd note, so the lien is properly filed and amortized correctly. They could do a 30 yr amortization with a balloon pmt due in 7-10 yrs.

I've been doing some research, and my original proposal just seems a convoluted way of doing a piggyback loan. The primary purchase mortgage would be from the sellers for $225k with a piggyback loan from my lending institution in the form of a home equity. One of the reasons (for those asking) why I wouldn't qualify under conventional means is how student loan debt is factored in, even if you're not paying on it. When we bought our first house it didn't get factored in at all if you weren't paying on it, now it's at least 1% of the total even if you aren't paying, and I'm in school for my PhD for at least a year or two more. The bonus about the home equity from my lending institution is that if the appraisal came in higher (and I think it will), I *think* I could get cash out to consolidate some bills because it's a separate loan and not the purchase mortgage, but do please correct me if I have no idea what I'm talking about.

Check a different lender that uses Freddie Mac rather than Fannie Mae loans - then the student loan debt won't be counted in your DTI ratios.

Next, for the "second" most lenders will want to be in first position rather than behind a private loan. Naturally it is different if the first is a regular conventional mortgage issued by a traditional lender rather than the seller. I think you will have issues with this when you try to get the second. Definitely a question to ask before you start down this road.

The second loan was going to be through my local credit union, and they are okay with being in the second position (they are in the second position currently on my current home). I just checked on Freddie Mac, and they have the same 1% requirement as Fannie Mae, so if you could point me in the direction of where in Freddie Mac the student loan debt won't count it would be appreciated. Thanks!

The house hasn't sold after being on the market for 13 years, yet somehow it will appraise for top value, and even more because included in all this is another 100k to pay bills?

I guess I am confused. If you have a DTI problem how are you getting out of a DTI problem while financing the same amount. Does your credit union not care about the DYI problem?

If you are asking about simply financing more of the house (piggybacking is one way) that is a different problem altogether. How would you qualify for a $200k loan on top of a $300k loan, when you wouldn't qualify for a $500k loan without committing mortgage fraud (use whatever numbers you want).

Next, why are you buying a house while finishing a PhD? I mean I was absolutely 100% sure I was going to stay in the area when I finished my PhD. That lasted about 2 weeks.

They keep lowering the price. When it was first listed it was listed for $800k, now it's at $475k. I get out of the DTI problem because the first position owner-carried mortgage doesn't count it and neither does the second-position home equity loan. The Student Loan debt is what makes the DTI problem, but only when you have to count it, and using this unconventional way of financing, I don't think it will, but I'm happy to be corrected. I've lived here for over 30 years, I'm not going anywhere, and I'm just getting my PhD because I want to, I have no desire to go into teaching.

I don't understand why the sellers would agree to finance your mortgage if the house is actually worth $475k. Why are you their only option? If it's worth 475k then they should be able to find a buyer that would buy it conventionally with no risk for them.

I get out of the DTI problem because the first position owner-carried mortgage doesn't count it and neither does the second-position home equity loan.

Why wouldn't it count? You must reveal all liabilities when you apply for any type of loan secured with a home. This includes any "off book" financing arrangements and the bank is required to ask this if the loan will be underwritten. Failure to disclose a liability is mortgage fraud.

You still might be able to make it work with interest only payments and a balloon payment but you would still have to reveal the arrangement to the bank.

I'm not going anywhere, and I'm just getting my PhD because I want to, I have no desire to go into teaching.

I actually said the same thing. The exact same thing. I was just stuck back in the U.S. for a few years and thought I would go get a PhD to waste some time and then go back to work. There was absolutely no way that I would even consider taking the massive paycut to teach. Yet, here I am...poorer and happier. But I accept that you are not me.

It would count, but in this case, the "bank" for the first position mortgage is the seller, and he doesn't have to abide by any DTI ratios. The second position mortgage with my credit union won't count the loans because they are in deferment for the foreseeable future, or at least they didn't count them on my last home equity loan in my current home for that reason. I wouldn't try to hide anything and certainly am not out there to do mortgage fraud, but with conventional purchase mortgages with traditional banks, student loan debt counts to the tune of 1% of the balance as a monthly payment even if in deferment or forebearance.

Yes, there are ways that you can make it work, however, it isn't going to be without risk.

In the end, your bank rather than us will decide what they will do. There are ways to make it work, however, I suspect your complicated loan thing isn't the answer. If your bank will do a piggyback loan that will work, however, they may not do it. In the end, the bank is going to send the deal to an underwriter who is going to make a decision. In weird financing deals like this I can't tell you what the underwriter will say, nor can anyone else here really.

You could also try to do a full purchase of the home with a balloon payment after a couple of months. In other words you finance the entire mortgage with the sellers, who have a rental agreement, then have a balloon payment and some type of guaranteed buyback clause in the deal. In other words, you get full title on the house but you have a big payment due to them before they move out. You can then work around the title requirement to get the second loan. While rarer than piggybacking, balloon loans like this aren't really new territory for a bank, assuming they do some commercial buildings.

I don't know your financial situation, and this house could be cheaper than you are currently paying, but generally when you have to do this type of creative financing it is because you can't afford it.

What are your job prospects when you are finished with your PhD? My assumption is that work isn't paying you to go because if they were you wouldn't have the DTI problem. Do you have something lined up? Because if you can't afford this deal you are screwing over yourself and the sellers pretty good, regardless of how good the deal is.

(1) "The bonus about the home equity from my lending institution is that if the appraisal came in higher (and I think it will), I *think* I could get cash out to consolidate some bills because it's a separate loan and not the purchase mortgage, but do please correct me if I have no idea what I'm talking about."

If you believe the appraisal will come in higher - Why does not the seller set the asking price at the appraisal/market value, instead, he would sell it to you at a below appraisal/market price?

(2) "in this case, the "bank" for the first position mortgage is the seller, and he doesn't have to abide by any DTI ratios. The second position mortgage with my credit union won't count the loans because they are in deferment for the foreseeable future"

Are you saying your credit union will loan you the money and assume, without verify, the amount you owe the seller is in fact your equity on the house?

How do you hide the first position mortgage debt on your credit union mortgage loan application form?

You would not hide the first position mortgage as that would be fraud. The CU would verify the amount owed for the first position mortgage as part of the verification of debt on my loan application.

Why not just buy a house you can afford as you pay off your student debt? You want a bigger house but sorry if a bank will not approve you that means you should not spend that amount. Wanting what one can not afford and than purchasing it is what caused our last financial crisis and made many people bankrupt. Be smart, buy only what you can pay for.

This is such a ridiculous discussion. Just let the OP go ahead and do what he obviously wants to do. Or at least, start paying for the lawyer and making bank applications. We can't convince him that the idea is lousy, he just needs to butt his head up against the bank and let them tell him the rules. He asked "Would this work?" and everyone says "NO". And he's still arguing. Give it up.

"You would not hide the first position mortgage as that would be fraud. The CU would verify the amount owed for the first position mortgage as part of the verification of debt on my loan application."

Then you would not meet the DTI requirement that CU and any lending institute would require. So you are back to square one.

This is the strangest discussion yet! WHY do people make up lending scenarios in their heads- "if the lender will..." without first checking with a lender?

Bob C- what you've proposed is more than likely completely un-doable and a much bigger hassle than if the sellers would simply agree to finance you.

In my experience, the bank was willing to lend me more money for a house than I was comfortable spending. Not only did we have to pay back a car loan and student loans, we wanted to save for retirement, establish an emergency fund, and travel occasionally.

If your DTI is too high to borrow for this house, how do you expect to pay those bills? Even if you can find a way for the student loan debt to not count as DTI, it still counts in REAL debt. It sure sounds to me like you should pay attention to the reason you can NOT get conventional financing for this house - it's because you can't afford it!

All, wanted to give an update to hopefully end this discussion. Came up with a way to do it. Sister-in-law needs a place to stay and is going to co-sign on this with us, and with that we qualify for conventional financing. Thanks for the vigorous discussion.