What would you do? (Real Estate Question)

[JSD]

Now we must add the criminal risks to the financial risks already mentioned.  Using your brother as additional income is occupancy fraud.  Depending on state laws, jail time and/or a hefty fine could be involved.

Here's a standard definition of occupancy fraud from wiki. .


Occupancy fraud: This occurs where the borrower wishes to obtain a mortgage to acquire an investment property, but states on the loan application that the borrower will occupy the property as the primary residence or as a second home. If undetected, the borrower typically obtains a lower interest rate than was warranted. Because lenders typically charge a higher interest rate for non-owner-occupied properties, which historically have higher delinqency rates, the lender receives insufficient return on capital and is over-exposed to loss relative to what was expected in the transaction. In addition, lenders allow larger loans on owner-occupied homes compared to loans for investment properties. When occupancy fraud occurs, it is likely that taxes on gains are not paid, resulting in additional fraud. It is considered fraud because the borrower has materially misprepresented the risk to the lender to obtain more favorable loan terms.

link: http://en.wikipedia.org/wiki/Mortgage_fraud

ahh... ummm... I was kidding my brother will be moving into that other unit.  

So your brother pays half on the $300K home, or half on the condo you already own?

2000/month my brother pays half
950/month tenants pay all

As many people have mentioned, time isn't working against you here, and you actually stand to benefit from your patience. 

Yeah, I feel a lot better about the state of the housing market being bad for some time to come after reading opinions on this thread. Although, it's impossible to predict.

[JSD]

So, he wouldn't be chipping in towards the mortgage payments?  In that case, I stand by my assertion that it would be horribly reckless - that's still a $300k mortgage supported by $45k income. 

From your brother's perspective, he stands to make some money if the house does appreciate, but he's taking a lot of risk as well; he's on the hook if you can't make the payments.  It's worse that you say it's your brother, if this DOES go bad, it's one thing to **** up a friendship, another to **** up a family relationship.  Tread VERY cautiously.

Let me echo this. 
Personal experience leads me to believe that it is best to not mix business with family/friends.  Many people think it will be different for them, many end up wrong.

Cman, please share your experience.

I have many examples:  2 best friends who opened a brewery in France (which ended up being successful) who now don't talk to each other; 2 good friends who opened a moderately successful restaurant in Oregon who are now less good friends (they at least still talk); and for personal reasons I won't discuss family member stuff, but will leave the following for you to ponder:

What happens if you brother suddenly needs the money that he put into your place?  How will he cash out?

The equity that is? Because I'd be the one coming up with the down payment (and I'd get it back after a sale or refi).

[Cman]

So, he wouldn't be chipping in towards the mortgage payments?  In that case, I stand by my assertion that it would be horribly reckless - that's still a $300k mortgage supported by $45k income. 

From your brother's perspective, he stands to make some money if the house does appreciate, but he's taking a lot of risk as well; he's on the hook if you can't make the payments.  It's worse that you say it's your brother, if this DOES go bad, it's one thing to **** up a friendship, another to **** up a family relationship.  Tread VERY cautiously.

Let me echo this. 
Personal experience leads me to believe that it is best to not mix business with family/friends.  Many people think it will be different for them, many end up wrong.

Cman, please share your experience.

I have many examples:  2 best friends who opened a brewery in France (which ended up being successful) who now don't talk to each other; 2 good friends who opened a moderately successful restaurant in Oregon who are now less good friends (they at least still talk); and for personal reasons I won't discuss family member stuff, but will leave the following for you to ponder:

What happens if you brother suddenly needs the money that he put into your place?  How will he cash out?

The equity that is? Because I'd be the one coming up with the down payment (and I'd get it back after a sale or refi).
Yeah, the equity.  If he leaves you in a rough spot it could lead to some bad feelings all around.

[Chris]

So, he wouldn't be chipping in towards the mortgage payments?  In that case, I stand by my assertion that it would be horribly reckless - that's still a $300k mortgage supported by $45k income. 

From your brother's perspective, he stands to make some money if the house does appreciate, but he's taking a lot of risk as well; he's on the hook if you can't make the payments.  It's worse that you say it's your brother, if this DOES go bad, it's one thing to **** up a friendship, another to **** up a family relationship.  Tread VERY cautiously.

Let me echo this. 
Personal experience leads me to believe that it is best to not mix business with family/friends.  Many people think it will be different for them, many end up wrong.

Cman, please share your experience.

I have many examples:  2 best friends who opened a brewery in France (which ended up being successful) who now don't talk to each other; 2 good friends who opened a moderately successful restaurant in Oregon who are now less good friends (they at least still talk); and for personal reasons I won't discuss family member stuff, but will leave the following for you to ponder:

What happens if you brother suddenly needs the money that he put into your place?  How will he cash out?

The equity that is? Because I'd be the one coming up with the down payment (and I'd get it back after a sale or refi).

Well, what if you lose your tenants, and cannot find new ones for a while, and your brother suddenly does not have the cash to pay half?

Also, what if you lose tenants in both the condo, and the the new house?  Or if you need to make renovations?  Will you be able to afford it?

[JSD]

Nick, I don't see how 6.75 is modest (I currently have a 5.6)

You are not accounting for "rate bumps" or "pricing hits" that would be assessed to the interest rate because of your particular loan. First off it's a multi-unit property, so you get charged for that.  Secondly your down payment is a pittance, so you'll get charged for that.  Thirdly your co-borrower has bad credit, so you will be hit for that (a 1-2% bump, depending on his score).

So I think the estimate of 6.75% is quite low actually.  I think it would be 8% or higher.

TP4U Thank you for explaining that

8 years in the mortgage business as a loan officer.  Personally, I don't think this loan has a shot in hell, no matter what kind of shenanigan's he tries to pull with his brother.  I know I wouldn't touch it, because it's got fraud written all over it.  And that would put my license and career in jeopardy, not to mention possible criminal charges.  Banks are far to eager to prosecute even for perceived misdeeds these days.

But maybe he'll find a shoot-from-the-hip, risk taker type loan officer to help him massage this through the system.  That's his prerogative.  I have very little doubt where that story would end though - foreclosure proceedings, followed by stiff penalties (probably not jail) when they fully investigated why the loan went bust.

MetroGlobe, why are you so angry?

[JSD]

So, he wouldn't be chipping in towards the mortgage payments?  In that case, I stand by my assertion that it would be horribly reckless - that's still a $300k mortgage supported by $45k income. 

From your brother's perspective, he stands to make some money if the house does appreciate, but he's taking a lot of risk as well; he's on the hook if you can't make the payments.  It's worse that you say it's your brother, if this DOES go bad, it's one thing to **** up a friendship, another to **** up a family relationship.  Tread VERY cautiously.

Let me echo this. 
Personal experience leads me to believe that it is best to not mix business with family/friends.  Many people think it will be different for them, many end up wrong.

Cman, please share your experience.

I have many examples:  2 best friends who opened a brewery in France (which ended up being successful) who now don't talk to each other; 2 good friends who opened a moderately successful restaurant in Oregon who are now less good friends (they at least still talk); and for personal reasons I won't discuss family member stuff, but will leave the following for you to ponder:

What happens if you brother suddenly needs the money that he put into your place?  How will he cash out?

The equity that is? Because I'd be the one coming up with the down payment (and I'd get it back after a sale or refi).
Yeah, the equity.  If he leaves you in a rough spot it could lead to some bad feelings all around.

Well, I would try to accommodate him as best I could. After all it's my brother.

[JSD]

Well, what if you lose your tenants, and cannot find new ones for a while, and your brother suddenly does not have the cash to pay half?

Also, what if you lose tenants in both the condo, and the the new house?  Or if you need to make renovations?  Will you be able to afford it?

Yeah, these are all risks. My brother makes good money with credit in the 680's (not horrific or anything) so I'm not so worried about that. And finding tenants (at our condo location) is really not hard. We posted on Craigslist and facebook (after a friend backed out last minute) and had the place rented within 4 days. Are tenants now are great (so far anyway)

[MetroGlobe]

Nick, I don't see how 6.75 is modest (I currently have a 5.6)

You are not accounting for "rate bumps" or "pricing hits" that would be assessed to the interest rate because of your particular loan. First off it's a multi-unit property, so you get charged for that.  Secondly your down payment is a pittance, so you'll get charged for that.  Thirdly your co-borrower has bad credit, so you will be hit for that (a 1-2% bump, depending on his score).

So I think the estimate of 6.75% is quite low actually.  I think it would be 8% or higher.

TP4U Thank you for explaining that

8 years in the mortgage business as a loan officer.  Personally, I don't think this loan has a shot in hell, no matter what kind of shenanigan's he tries to pull with his brother.  I know I wouldn't touch it, because it's got fraud written all over it.  And that would put my license and career in jeopardy, not to mention possible criminal charges.  Banks are far to eager to prosecute even for perceived misdeeds these days.

But maybe he'll find a shoot-from-the-hip, risk taker type loan officer to help him massage this through the system.  That's his prerogative.  I have very little doubt where that story would end though - foreclosure proceedings, followed by stiff penalties (probably not jail) when they fully investigated why the loan went bust.

MetroGlobe, why are you so angry?

I'm actually not angry per se.  I'm just trying to use a certain tone in an effort to make you see the downside to what you're chasing here.

But maybe there is a hint of resentment behind my words because as a professional in the mortgage industry, this type of behavior really was a huge driving force behind the current crisis we're dealing with.  And to hear that some people are still trying to get away with it, to skirt the rules as part of some kind of wealth building scheme, I can't help but be a bit put off.

In this entire thread of how many posts, you haven't seen one, single positive response to your plan.  Yet you still persist, as if you are smarter than not only your peers, but the government and banking regulators themselves.  As one of those regulators, I am telling you that this plan is ludicrous and well above your means.

[Brickowski]

BTW, 6.75% in today's market is not a good rate.  I just refied for under 5% on a 15 year fixed.

As others have been trying to tell you, you don't have the money, my friend.  It doesn't matter where the market is.

[nickagneta]

Nick, I don't see how 6.75 is modest (I currently have a 5.6)

You are not accounting for "rate bumps" or "pricing hits" that would be assessed to the interest rate because of your particular loan. First off it's a multi-unit property, so you get charged for that.  Secondly your down payment is a pittance, so you'll get charged for that.  Thirdly your co-borrower has bad credit, so you will be hit for that (a 1-2% bump, depending on his score).

So I think the estimate of 6.75% is quite low actually.  I think it would be 8% or higher.

TP4U Thank you for explaining that

8 years in the mortgage business as a loan officer.  Personally, I don't think this loan has a shot in hell, no matter what kind of shenanigan's he tries to pull with his brother.  I know I wouldn't touch it, because it's got fraud written all over it.  And that would put my license and career in jeopardy, not to mention possible criminal charges.  Banks are far to eager to prosecute even for perceived misdeeds these days.

But maybe he'll find a shoot-from-the-hip, risk taker type loan officer to help him massage this through the system.  That's his prerogative.  I have very little doubt where that story would end though - foreclosure proceedings, followed by stiff penalties (probably not jail) when they fully investigated why the loan went bust.

MetroGlobe, why are you so angry?

This is the second time someone gave you his opinion, an opinion you didn't want to hear, and you took it personally Jsaad. He isn't angry, just giving you the realities of the situation that you seem to not want to admit are there.

You are a massive risk. You are putting together a rather shady verbal(I assume, I could be wrong)agreement/partnership to try to get this deal approve. You have not taken into consideration the worst case scenarios, which I assure you the bank will take into consideration. And your math on the payments aren't even close.

Before thinking people are insulting you or are angry at you take a step back and absorb what people here are trying to tell you. You are making a possibly huge mistake.

What happens if the tenants move, or worse, stop making the rent payment but stay there and you then have to start eviction proceedings? What happens if either place needs emergency renovations due to non-home owners insurance covered problems? What happens if you brother goes belly up or loses his job and needs an immediate payback? What happens if the stress due to any of this happening effects your marriage(and if things go bad, it will, believe me)? Is it worth giving her up?

[Chris]

Nick, I don't see how 6.75 is modest (I currently have a 5.6)

You are not accounting for "rate bumps" or "pricing hits" that would be assessed to the interest rate because of your particular loan. First off it's a multi-unit property, so you get charged for that.  Secondly your down payment is a pittance, so you'll get charged for that.  Thirdly your co-borrower has bad credit, so you will be hit for that (a 1-2% bump, depending on his score).

So I think the estimate of 6.75% is quite low actually.  I think it would be 8% or higher.

TP4U Thank you for explaining that

8 years in the mortgage business as a loan officer.  Personally, I don't think this loan has a shot in hell, no matter what kind of shenanigan's he tries to pull with his brother.  I know I wouldn't touch it, because it's got fraud written all over it.  And that would put my license and career in jeopardy, not to mention possible criminal charges.  Banks are far to eager to prosecute even for perceived misdeeds these days.

But maybe he'll find a shoot-from-the-hip, risk taker type loan officer to help him massage this through the system.  That's his prerogative.  I have very little doubt where that story would end though - foreclosure proceedings, followed by stiff penalties (probably not jail) when they fully investigated why the loan went bust.

MetroGlobe, why are you so angry?

Not to speak for MetroGlobe, but have you been paying attention to what has happened in this country lately?

While you may be responsible, what you have been describing is exactly the type of situation that has led to the mess we are currently in with the housing market.  You may be the exception, because you have your ducks in a row, but on the surface, you are talking about a MAJOR risk of a loan.  

I really hope that you are right, and you would be completely fine...but looking at it as an outsider, who does not know your brother, or what your wife does for a living, or any of these other details, it looks scary as hell.

[nickagneta]

BTW, 6.75% in today's market is not a good rate.  I just refied for under 5% on a 15 year fixed.

As others have been trying to tell you, you don't have the money, my friend.  It doesn't matter where the market is.

No, it's a bad rate but it is a rate he will get from a predatory or somewhat unethical lender if he doesn't have the down payment or income.

[JSD]

wow... rough time to be leaving work but I gotta go. My brother and I going in on a duplex together is not unreasonable but I appreciate all the concern with the details around it. Maybe I'm not explaining myself well enough.

[ChampKind]

Nick, I don't see how 6.75 is modest (I currently have a 5.6)

You are not accounting for "rate bumps" or "pricing hits" that would be assessed to the interest rate because of your particular loan. First off it's a multi-unit property, so you get charged for that.  Secondly your down payment is a pittance, so you'll get charged for that.  Thirdly your co-borrower has bad credit, so you will be hit for that (a 1-2% bump, depending on his score).

So I think the estimate of 6.75% is quite low actually.  I think it would be 8% or higher.

TP4U Thank you for explaining that

8 years in the mortgage business as a loan officer.  Personally, I don't think this loan has a shot in hell, no matter what kind of shenanigan's he tries to pull with his brother.  I know I wouldn't touch it, because it's got fraud written all over it.  And that would put my license and career in jeopardy, not to mention possible criminal charges.  Banks are far to eager to prosecute even for perceived misdeeds these days.

But maybe he'll find a shoot-from-the-hip, risk taker type loan officer to help him massage this through the system.  That's his prerogative.  I have very little doubt where that story would end though - foreclosure proceedings, followed by stiff penalties (probably not jail) when they fully investigated why the loan went bust.

MetroGlobe, why are you so angry?

What happens if the stress due to any of this happening effects your marriage(and if things go bad, it will, believe me)? Is it worth giving her up?

Too far, Nick.  I think that's stepping beyond the realm of helpful advice, linking a potential house deal to divorce.  That's more personal than anything that's come up so far.

[nickagneta]

Nick, I don't see how 6.75 is modest (I currently have a 5.6)

You are not accounting for "rate bumps" or "pricing hits" that would be assessed to the interest rate because of your particular loan. First off it's a multi-unit property, so you get charged for that.  Secondly your down payment is a pittance, so you'll get charged for that.  Thirdly your co-borrower has bad credit, so you will be hit for that (a 1-2% bump, depending on his score).

So I think the estimate of 6.75% is quite low actually.  I think it would be 8% or higher.

TP4U Thank you for explaining that

8 years in the mortgage business as a loan officer.  Personally, I don't think this loan has a shot in hell, no matter what kind of shenanigan's he tries to pull with his brother.  I know I wouldn't touch it, because it's got fraud written all over it.  And that would put my license and career in jeopardy, not to mention possible criminal charges.  Banks are far to eager to prosecute even for perceived misdeeds these days.

But maybe he'll find a shoot-from-the-hip, risk taker type loan officer to help him massage this through the system.  That's his prerogative.  I have very little doubt where that story would end though - foreclosure proceedings, followed by stiff penalties (probably not jail) when they fully investigated why the loan went bust.

MetroGlobe, why are you so angry?

What happens if the stress due to any of this happening effects your marriage(and if things go bad, it will, believe me)? Is it worth giving her up?

Too far, Nick.  I think that's stepping beyond the realm of helpful advice, linking a potential house deal to divorce.  That's more personal than anything that's come up so far.

Why is this too far? Do you really believe that if things fall apart on his personal finances and it puts his house he lives in in jeopardy that an after effect isn't going to be the relationship he has with his wife?