It has been a year since my foreclosure. I’m renting now, but the rent is high in Chicago where I live. If I bought another house and got a mortgage, that would save me $300 a month, which would allow me to pay my debt and get my credit back together. I’d actually put the property in my son’s name, although he is only 17. Is that okay?
It sounds as though you’re in a tough situation. We don’t know why you went into foreclosure, but you were clearly overextended financially.
You’ve reasoned that if you could just buy another house, interest rates are still so low that you would be able to save $300 per month and use that sum to pay off your debts and begin to repair your credit history.
You have a 17-year old son with, you’re assuming, pristine credit. The problem is that he’s 17 and not 18. He’s a minor, and you can’t buy property in his name. That said, he’ll be 18 soon enough, and you can then put your plan into action.
However, there are concerns we would like to raise so that you don’t get surprised along the way. First, does your son have the kind of credit he needs to buy a property? When someone that young buys property, they typically don’t have much of a credit score. Your score is low because you went into foreclosure, and we’re guessing your debt-to-income ratio is out of whack. Finding cash to put down on a house, create the required cash reserves, and use for closing costs could be problematic when you’re already hunting for an extra $300 per month.
Your soon-to-be 18-year-old probably doesn’t have great credit, and he may have to pay a higher-than-expected interest rate penalty because of that, if he can qualify for a loan at all. In addition, he’ll have to show he can qualify for the mortgage and that he meets the ability-to-repay rules. But if you have any hopes that your child will continue his education and go to college, this plan would pretty much tank that idea.
Here’s more potentially bad news: Once you put the house in his name, he’ll own it. Not you. That means if he decides to sell the property, take the money and run, you won’t have much to say about it. Technically, it’s his property, and he can do with it what he wants.
That would leave you in worse shape than you are in now.
We’re all in favor of finding an extra $300 in your budget and paying down your debt. But it might be faster for you to work on improving your credit for the next year or two, and taking a part-time job to help pay down your debts faster. Perhaps your son could get a part-time job to help out; then in a couple of years, when your credit history is repaired, you could try again to get qualified for a mortgage.
In any case, if you decide to put the property in your son’s name, please consult with an attorney who can draft any documents that may be required.
Ilyce Glink is the creator of an 18-part webinar/e-book series called “The Intentional Investor: How to Be Wildly Successful in Real Estate” and the author of many books on real estate. She also hosts the “Real Estate Minute” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them at ThinkGlink.com.