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Refinancing Your Parents' Home: Stumbling Stones
A lot of people nowadays consider the possibility of refinancing their homes as a good way to get some profit from their home equity and to improve their financial situation. Refinancing your home may be a very helpful source of money for home improvements you've planned or may simply allow you to take advantage of lower interest rates. Besides, quite a frequent situation is that people, in order to help a family member, consider refinancing a family member's home in their own name. This situation is mostly common between parents and children, but whoever the person whose property you want to refinance in your own name is - be it your parent, brother, cousin or a total stranger - that doesn't change the procedure or main principles much.
When you sign or even co-sign for someone, it's your personal income, credit history and debt/credit ratio that will determine what amount of money you are be able to refinance in your parents' home. The main concern of home mortgage lenders is whether you are able to fulfill the terms of a refinanced home loan, and thus they will only be willing to approve your proposal if they are sure that you are creditworthy enough for what you propose.
Another concern for the lenders is whether you can afford the monthly payments, which will primarily depend on your income, your financial lifestyle and your current financial obligations. If the latter include student
loans, auto loans, debts on credit cards or, most importantly, your own home payments, this may well urge the lenders to abstain from approving your loan. Generally, mortgagers tend to approve loans if the borrower's total payments do not exceed 36%-40% of the borrower's total monthly income, and thus whether your lender will agree to your refinancing scheme largely depends on your financial ability to make an extra monthly payment.
Finally, when refinancing a parent's home, your potential home lenders will require a collateral. They are always concerned in security, because banks and most lenders prefer receiving due cash payments every month to the possibility of foreclosing and seizing your land. Banks work with money - not real estate, but, on the other hand, they need to be sure that, in case you will be in default on your loan, they will be able to get back the money they have lent you. If the home you want to refinance is in someone other's name, this may become a problem in course of security risk evaluation performed by the bank with regard to your potential loan.
So, before you do any important planning, consult with your personal lender or a real estate attorney about relevant local or state legislation that can make if difficult for you to refinance your parent's home in your own name.
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