Mortgage question - selling our house to a 1st-time buyer/tenant

We've been renting our old house for the last couple years(at a loss) trying to get it paid down enough to be able to sell it. The people who've lived there the last year would love to buy it, and I'm trying to expedite the process by figuring out how/what/when needs to happen.

It's a single mother and her 3-kids in the house, plus her mother. Grandma has been a federal employee for several years, but had a bad car accident this spring and has been off work for 2-months. It'll probably be at least 2-more before she goes back to work from the sounds of it. Mom has been working a good job since late November, getting awards/bonuses at work, etc.

I know our tenants don't have money for a down payment. In all likelihood the house will probably either need paid down more and/or have some money put into repairs for it to appraise at least as much as the payoff amount. I'm ok with putting money into this to make it happen, as selling it is the 1st step in us being able to relocate somewhere warmer.

So, my questions:

1.) Is the Mom, with only 7-months of steady work history, going to be able to get a mortgage in her name?

2.) Is Grandma, injured and off work presently, going to have problems getting a mortgage in her name after she returns to work(if Mom can't)?

3.) If I understand correctly, Fannie Mae has a program that covers the 3% down payment required by most lenders. Is that correct?

4.) Are there any other plans I've not heard about? FYI this is in IL if it matters.

In reply to Datsun1500:

Last time I used one it didn't work out well. At all. Granted, that was June of '07 weeks before the SHTF, and while the feeding frenzy was still occurring.

She might get something through HUD.

But let her do the looking, not you.

In reply to iceracer:

I'm not waiting around for that to happen. Once it's feasible for me to sell the house, I'm bringing a deal to her - quite honestly, they're not from a good family, although she truly seems to be trying hard to give her kids a better life. However, I'm not sure anyone in their large immediate family has owned a house, so she doesn't exactly have friends/relatives she can turn to for guidance & advice. At that point if she declines, then I'll get it listed and go through the hassle of a realtor.

For now it would just be much easier for all parties if she buys it...and no, I'm not doing a contract sale. I don't want to be a landlord from ~1000mi away, and since I have to rent it at a loss just to have someone in the house, keeping utilities on, etc. I'm not paying a property-management company to do it. I'm dropping this place and GTFU of here before the next big crisis causes property values to tank even further - they've never recovered from '07-'08.

They might be able to cosign, but no down payment's probably a problem.

I can tell you, I just got (mostly, appraisal hasn't happened yet) approved for a first-time mortgage in Illinois, and even with a steady job (20+ years) and a 46% down payment, there was never a time where it didn't feel like the whole thing was about to fall apart. And in fact it still feels that way. Another thing to think about, if they don't have money for a down payment, how will they pay for closing costs?

In reply to slowride:

I'd gladly cover the closing costs. Could I perhaps interest you in a house? Has a 24'x32' garage plus a 12'x16' shed.

So what's good about this deal?

You seem to have listed virtually every reason why a seller would not want to sell to a buyer, and packaged them all into one neat little package you call your "buyer".

It's hopefully a quicker way to get out from under the house.

In reply to petegossett: I'm not uninterested, but I think you're farther south than would be reasonable for a commute to Schaumburg. A couple more years, and we may all be working from home... maybe then!

In reply to petegossett:

OK, so you want a quick sale, and you understand that will cost you some money. You will have to pay closing costs, buy down the mortgage, sell at a discount, or hold paper.

You are still way too focused on a crappy buyer.

Take your circumstances, quantify them, define your limitations, and find a GOOD buyer.

You have defined that you don't want to hold paper. Good. 1 down.

So, how much money are you willing to put into this? Convert it to a dollar amount today, and discount the price by that much.

Then find a quality cash buyer who likes the local area. Maybe one who wants a good tenant, and your house is already occupied with a rental income. Find a buyer who will enable a deal where you can walk away, since that is your priority.

This is the wrong buyer, and you will not gain anything by putting together a deal that will not work for either you, the lender, or her.

I am concerned that the real problem may be that you are more upside down in the deal than you are actually willing to discount. If that's the case, you will be putting her in a likely future bankruptcy by making her buy some of your faulty debt.

If that's not the case, no problem. There are good buyers out there ready to buy properties at fair prices.

Breath deeply. Don't fight the river. No one makes good decisions when they are in crisis.

SVreX wrote: In reply to petegossett: OK, so you want a quick sale, and you understand that will cost you some money. You will have to pay closing costs, buy down the mortgage, sell at a discount, or hold paper. You are still way too focused on a crappy buyer.

Quite possibly true, but my question was more regarding what it takes to get a 1st-time homebuyer qualified in the present market, and whether it would even be possible for these people to buy. It's a situation of "bird in the hand" and such, and the fact that if these people can be qualified for a mortgage then I don't have to go through the extra "spiffing-up" - in addition to whatever money I'll have to put out anyway - to make the house attractive enough for other buyers.

SVreX wrote: Take your circumstances, quantify them, define your limitations, and find a GOOD buyer. You have defined that you don't want to hold paper. Good. 1 down. So, how much money are you willing to put into this? Convert it to a dollar amount today, and discount the price by that much.

Good question. I'm not sure how much I need to put into it. I've been watching house prices here in town, but a.) there aren't that many on the market in town, and b.) I often see 2 similar homes(and I've been in most of them in this town at one time or another) with drastically different asking prices.

I've considered getting an appraisal before going much further, but IME those seem to vary widely, and often not be of much use other than setting a loan value.

SVreX wrote: Then find a quality cash buyer who likes the local area. Maybe one who wants a good tenant, and your house is already occupied with a rental income. Find a buyer who will enable a deal where you can walk away, since that is your priority. This is the wrong buyer, and you will not gain anything by putting together a deal that will not work for either you, the lender, or her. I am concerned that the real problem may be that you are more upside down in the deal than you are actually willing to discount. If that's the case, you will be putting her in a likely future bankruptcy by making her buy some of your faulty debt. If that's not the case, no problem. There are good buyers out there ready to buy properties at fair prices.

There are few buyers who are interested in our town, which is why house prices have remained largely stagnant since the crash. Our main street has some gorgeous victorian homes/mansions, and we've had several purchased by retirees from the Chicago area. They like that the prices are so low they can usually buy many times the home they had in the suburbs without tapping into their retirement, the low crime rate and quite small-town living, yet the convenience of only being 2-hours or less from friends/family in the city. Unfortunately, our home is not one of these nice Victorian homes, nor on our main street.

The only cash buyers in our town are people looking for rentals. Our property is both too large and too expensive for them. They're buying foreclosures for ~$10k, putting another $5k-$10k into them, and renting them for $350-$400/month.

If you're curious about home prices, please check out realtor.com(or MLS if you have access) and let me know what you think. 60963 is the zip. I'd love to hear your insight Paul.

SVreX wrote: Breath deeply. Don't fight the river. No one makes good decisions when they are in crisis.

Fortunately we're nowhere near crisis stage, and I don't see that occurring. But I am tired of still spending money on the place and would love to drop it like a hot-potato.

You're right, I was answering a question you didn't ask, and reading between the lines.

The short answer to the question you did ask is no, I don't know anything about qualifying marginal buyers in today's market. It looks entirely random and subjective to me.

Glad to hear you haven't hit the crisis point.

Hey Pete:

How does this relate to your downtown building?

You were very excited at one point about the opportunities in helping build your community (so much so that I wanted to come join you!). Now it sounds like something has changed.

Is this your old house? Are you also trying to get away from the downtown building? Have you had it with small town life?

Don't answer if you don't want to, but it seems relevant to whatever decisions you make on this house.

short - they're not going to get a loan. when a vet on a fixed guaranteed government income who had his legs blown off in iraq can not get a VA loan on a wheelchair accessible home that he was pre-approved for, these people are not getting one. we've had 7 people fall through on a house in cleveland, half were pre approved. one lady had a 700 credit score, and when it dropped 6 points during the process(probably because of their inquiries), they threw her pre approval out and would not give her the $

We have been trying to sell our house as part of divorce and there sure seem to be plenty of marginal buyers out there who are approved for 100% mortgages thru Rural Development or other entities for what to me seems to be very high purchase prices but have absolutely no extra money for repairs or other costs of the purchase ie closing costs. We even increased the purchase price on one proposed deal by over $5k to finance the closing costs. No one in the process had any issues with this deal???
Your real problem is trying to get these people qualified by participating in the process. They need to be doing it, not you. You cant possibly have all the information necessary to complete an application.
I do agree with one thing that you said. Hurry and get this deal closed because my experience has shown that no one in real estate learned anything from 2008 and the house of cards will fall again.

In reply to whenry:

That's one of my main concerns! And I'm certainly not going to "do" the work for them. What is like to bring to the table is: "You've said you want to buy this house, here's a program that will allow you to do so. You need to talk to these people, and provide them this documentation. To help the process I'm willing to take care of X/Y/Z."

Lead then to water, so to speak...

Pete - I realize that you want to get the house sold (I've been in that very same situation) but if that's the case you need to list it and find other buyers. Two wage earners, one with only 7 months of steady work history and the other is injured and unemployed? From what you've described of your tenants, buying a house--any house--could well be a terrible financial decision for them in the long run.

I am going to echo some others but it seems to me too the best that you can do for the current tenants, who are people you like, is find them a good, new landlord.

SVreX wrote: Hey Pete: How does this relate to your downtown building? You were very excited at one point about the opportunities in helping build your community (so much so that I wanted to come join you!). Now it sounds like something has changed. Is this your old house? Are you also trying to get away from the downtown building? Have you had it with small town life? Don't answer if you don't want to, but it seems relevant to whatever decisions you make on this house.

We still completely love our building, and would pack it up brick-by-brick and take it with us if we could!

This is largely driven by SWMBO's Reynad's disease and the effects the cold weather has on her, and also her career. As a life-long federal employee & a USAF veteran she has 13-more years until she can begin collecting her retirement. However the amount will be based on her last-3 pay-grades. There's just no opportunities for her to get promoted here(plus the VA system is a mess), and most of the Federal jobs happen to be along the coast also.

Add to that our 2 oldest sons need to begin finding their own way soon(rather begrudgingly, but they're working on it), one daughter who's a Senior(and already capable of taking care of herself) and another who's a Freshman, and before too long we won't need housing for 6 - which was one of the driving factors of the building purchase/remodel.

The antique market has dried up now that most people figured out American Pickers isn't as easy as it looks. So I'm auctioning off all my inventory and focusing on just the PC repair for my side-job.

It's still a nice town, we just loathe winter more & more each year. So those factors combined are what's driving us to this life change.

The building is paid for. On one hand we could keep it, since we'll be back several times per year. On the other, selling it would allow a good down-payment on a nice house somewhere warmer, and we could probably still afford a cheap smaller house here. So that's still undecided.

Here's an idea...

Package the building together with the house, present the entire package here or elsewhere, and look for someone who is willing to relocate and take the entire package, including your tenant.

Seems to me that there could easily be people here who can work remotely, are at the start of their professional careers, would love to live in a small town, would be interested in trying several different things like you, would think your price tag is a bargain, and perhaps pick up your dreams where you left off.

Heck, I might do it if I keep talking!!

Something else I noticed.
The rental house may be a little upside down but the downtown building is paid off.
Does the value of the two buildings exceed the combined debt? If yes, borrow a little on the building to gather capital to pay down the house.

Is it possible that you could get a triple net lease tenant for the building when you leave or is that not popular where you are?

In reply to SVreX:

GRM-price $125k for both.

That gets you a 1600-sq/ft 3-br, 1-full + 2-half baths house on a large double lot on a corner. Has central air, gas heat, screened back patio, original hardwood floors, mature trees. 24'x32' detached garage, 12'x16' shed.

But wait, there's more!!!

You also get an 8800-sq/ft circa-1898 brick double-storefront building in our historic downtown. Featuring 3500-sq/ft of commercial space on the first floor, a 3500-sq/ft 4-bed/2-bath apartment on the 2nd floor(that could be split into 2 separate 1750-sq/ft units, and 1750-sq/ft of unfinished/storage space on the 3rd floor. The 2nd floor living space is completely remodeled with new plumbing/electric, high-efficiency gas furnaces & A/C, 13" of fiberglass insulation in the ceilings, new high-efficiency windows, hardwood floors, remodeled kitchen, etc. Also has a 50'x40' gravel parking area in the rear.

Oh, and we have 60-meg internet here that works well.

In reply to JohnRW1621:

I've never heard of a triple net lease tenant, but the reality is most of the stores are vacant here.

In reply to petegossett:

Nice.

Get thee behind me, satan. Lol!

What's the condition of the commercial space? Occupied? Leased?

What's the condition of the rest of the downtown? I know at one point you were hoping there would be some additional renewal- any forward momentum?

Good luck, Pete!

(I'm gonna share this with a couple of people)

In reply to SVreX:

We currently rent ~1/4th the space(back room on the alley-side with it's own entrance) to the town barber for $200/month. My workshop area/entrance is in the front 1/2 of that side, and the other side was my antiques/junk.

There's been a bit of forward momentum here & there, but it's overall pretty stagnant. There are 4-buildings occupied by an antique/used-furniture store that's open regularly, a bar that just expanded into a 2nd building with dining area, insurance office, 1-vacant/for-sale building with a 2nd part-time antique store. 4-other part-time antique stores. 4-buildings for sale. Two in very slow states of perpetual rehab(underfunded). One being remodeled quite nicely(retired pilot), but no intention to open a business(it's his hobby) Two that are occupied as residences only. And the "Haunted Opera House" that has ghost tours most weekends.

Thanks for spreading the word!