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I'm looking to purchase a house for my sister. The house is in a different state than the one I reside in, and I do not plan to move from my state. My sister wouldn't qualify for a mortgage by herself, and the home she's looking to purchase is a HUD-home which requires property to be owner-occupied. While I could get the cash to pay for it outright I rather put 20-40% down and finance the rest, especially if we can get something like the Penfed 5/5 ARM where they'd pay closing.

My question is how would I do this? Would she be the one applying for the loan and I would co-sign for it? Would this be considered my second home? Would there be any tax ramifications for me by doing this?

My sister would not pay me any rent, so this wouldn't be an income property, she would simply pay the note each month. Also, if she doesn't pay it I am willing to pay it all myself and will never hold it against her.

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What happens when she sells it and keeps the money and doesn't tell you?

forbin4040 said:   What happens when she sells it and keeps the money and doesn't tell you?

Thats called doing business with family. It never ends well...

forbin4040 said:   What happens when she sells it and keeps the money and doesn't tell you?
I am considering this as a gift so hope she enjoys it if she sells and doesn't tell me.

Please see the numerous "Should I buy this car/house/business for my family member?" threads that are already on FW.

TravelerMSY said:   Please see the numerous "Should I buy this car/house/business for my family member?" threads that are already on FW.
Can we please focus on my actual question here? I understand the risk and am considering this money as a gift. I am not asking if I should do it, I'm asking how to do it.

It's all covered elsewhere.

In a word....don't

If she can't get a loan, she will not be able to make the payments. Loan originators aren't idiots...it is actually historically very easy to get a housing loan. If she can't get one, there is probably a good reason.

Well since willing to pay 40% that would have gift tax implications. I am not sure on HUD homes and tenant situation requirements but would joint tenants in common where technically you two buy the home together and then both technically own it be a good option in your case?

How about you choose the house yourself, and pick one that doesn't complicate the financing. Get the house in your name, and let her live there (either chipping in on the mortgage, or rent free - as you prefer).

If you are providing the funding for the house, I hardly think she is going to complain that she got a different house than she wanted.

betaTest said:   I'm looking to purchase a house for my sister. The house is in a different state than the one I reside in, and I do not plan to move from my state. My sister wouldn't qualify for a mortgage by herself, and the home she's looking to purchase is a HUD-home which requires property to be owner-occupied. While I could get the cash to pay for it outright I rather put 20-40% down and finance the rest, especially if we can get something like the Penfed 5/5 ARM where they'd pay closing.

My question is how would I do this? Would she be the one applying for the loan and I would co-sign for it? Would this be considered my second home? Would there be any tax ramifications for me by doing this?

My sister would not pay me any rent, so this wouldn't be an income property, she would simply pay the note each month. Also, if she doesn't pay it I am willing to pay it all myself and will never hold it against her.


1. Buy the house under your name (loan and title) and have your sister live there rent free. You keep making mortgage payments. This will be consider a second home (non owner occupied) and your rate will be slightly higher.

2. You can be her co-borrower and can get the mortgage as OO.

I am not a tax expert, but if you are not collecting rent, then you don't have to pay tax (or take deductions) on rental income. You sister might be able to take the tax deduction on mortgage interest if you go with option 2 as OO. Check with your accountant.

Do you want to adopt me as a brother?

I did that for my sister and brother in law. I was co-sign the loan. They used their SSN for tax. My name was in the deed and loan. Years later when they finally qualified for refinance, I transferred everthing back to them and took my name off. To help family out and see them successful, priceless.

TYH3 said:   You can be her co-borrower and can get the mortgage as OO.
Thank you for replying to my question.

WhyAskWhy, Why did you co-sign and not co-borrow? Since your name was on deed doesn't that mean that you were the co-borrower and not co-signer since you had interest in the property, did I get that right?

betaTest said:   TYH3 said:   You can be her co-borrower and can get the mortgage as OO.
Thank you for replying to my question.

WhyAskWhy, Why did you co-sign and not co-borrow? Since your name was on deed doesn't that mean that you were the co-borrower and not co-signer since you had interest in the property, did I get that right?


Name on the deed is not necessary the same thing as name on the loan. During the bubble days, you can just put 1 person's name on the loan and have 3 people on the deed. But today, if your name is on the deed, it must be on the loan as well to held you liable for the debt (I think except spouse and depends on the state).

Reading more posts about Penfed it seems to take a while for them to process, even when I called they said they wanted at-least a 30-day min. I don't mind paying a little more if it means a quick turnaround time. What are some lenders that would offer maybe a higher rate on a 5/5 ARM, or even shorter term, but with quick turn around and not rip-off in fees?

betaTest said:   Reading more posts about Penfed it seems to take a while for them to process, even when I called they said they wanted at-least a 30-day min. I don't mind paying a little more if it means a quick turnaround time. What are some lenders that would offer maybe a higher rate on a 5/5 ARM, or even shorter term, but with quick turn around and not rip-off in fees?

No suggestions, but if you can find someone with low closing fees that can close fast you can always let penfed take their sweet time on a no cost refi if it will lower your rate.

wilked said:   In a word....don't

If she can't get a loan, she will not be able to make the payments. Loan originators aren't idiots...it is actually historically very easy to get a housing loan. If she can't get one, there is probably a good reason.


Its actually a very difficult time to get a loan if you do not have the cash for down payment, decent credit score, stable job, strict DTI, tougher appraisals, stringent guidelines that banks/brokers are required to follow, and they will follow any large deposits money trail. This is what it should always be like except for the last decade.

You can include her on the deed but she does not have to be on the mortgage so she'll feel having ownership but it would be joint ownership so she can't simply sell it either without your consent.

SS7Man said:   You can include her on the deed but she does not have to be on the mortgage so she'll feel having ownership but it would be joint ownership so she can't simply sell it either without your consent.
I have to include her on the mortgage if I want to get better financing (owner-occupied). I'm not clear if me being on the deed has any affects on me for tax purposes or residency. Since I reside in a different state would I need to submit any tax paperwork in her state? I'm assuming this can be considered as my second home?



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