Holding a mortgage for a child
My son lives in a house I own (no mortgage), in NY state. He has a poor credit score and cant get a mortgage, I'm thinking of holding a mortgage for him. What are the pitfalls, is it fully legal and will it be viewed as an actual mortgage to help repair his credit.
2 attorney answers
I'm not sure what you mean by "holding a mortgage."
If you are talking about making a mortgage loan to him to help improve his credit, he would first have to buy property that would be secured by the loan - that's what a mortgage is. For you to make a mortgage loan to him on the house he's living in, you'd have to deed it to him, basically doing an owner financed sale. If your son has bad credit, it's because he doesn't pay his debts, and he won't treat the debt to you any better. (In fact, he might treat you worse than his other lenders.)
I strongly advise you not to lend him any money, and not to transfer your property to him. Let him build up his credit with smaller loans, made by somebody else, before you trust him with something so important to you.
I agree with Teri about not putting the property in his name, not just because he might treat you worse than other creditors, but because liens from his other debts might wind up preceding the mortgage if they have been turned into judgments. That would mean that the judgments would be paid before you if the house were sold.
You might want to look into a Contract for Warranty Deed - which would allow him to refinance the property into his name when he straightens out his credit. A refinance is generally easier to get than a purchase money loan and they will look at the current value of the house to account for an equity cushion instead of looking for a down payment from him.
Another alternative would be a rental with option to buy - where you can set the purchase price at a level that would create equity in the property and you can establish the option date to be out far enough for him to correct his credit.
This answer does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.