Refinancing Non-Arms-Length Non-Seasoned Home Purchase
by 'Getting Worried'
Ask Kate about refinancing a non-arms-length non-seasoned home purchase transaction: Hi Kate, Is 6 to 8 months seasoning long enough to wait for refinancing into a lower mortgage rate and conforming loan amount following a non-arms-length purchase transaction? I am the non-occupant co-borrower as well as joint owner with my address in a different state.
Getting Worried continues...
But the occupant owner and borrower is self-employed with relatively good income, very good credit and a low 50% loan-to-value.
Many thanks. From Getting Worried
Kate Answers: Refinancing Non-Arms-Length Non-Seasoned Home Purchase Transaction
Dear Getting Worried
I'm not sure why the home purchase was originally considered a non-arms-length transaction. Depending on the reason, it could affect the possibility of a refinance.
Non-arms-length transactions are clearly explained at Non-Arms-Length Transaction Home Buying Help
where you will meet Levi who wants to purchase his father's house for under-the- market-value and then immediately refinance with cash-out to pay back his dad.
Refinancing a Non-Seasoned Mortgage
First, I am going to focus my attention on the seasoning aspect.
A mortgage without 6 to 12 scheduled payments having been made is generally considered non-seasoned. The amount of time varies among loan programs, though.
Removing a co-borrower from a non-seasoned home loan complicates the refinance process further - even more so if the mortgage was originally a non-arms-length transaction!
So it's important to go into the loan process with legible and complete documentation showing that the occupant borrower has been living in the house and has the ability to qualify for the entire house payment. If the occupant borrower has been responsible for the monthly house payment, include cancelled checks (copies of both sides) or official bank statements to verify.
Use my Mortgage Information Planner
to simplify your job.
Refinancing a Non-Arms-Length Mortgage
Now let's add in a non-arms-length scenario.
Say you originally bought the home at a below-market price from a relative. Most likely, the lender will calculate the terms of your loan based on the original (lower) purchase price instead of current (higher) appraised value. In addition, if you are thinking of cashing out your portion of the investment, don't be surprised if the lender says to wait until 12 regular payments have been made.
Non-arms-length transactions typically make underwriters suspicious. Being an open-book gives them a comfort level to approve a mortgage. So, I'll say it again. Be complete with your documentation and letters of explanation regarding the original transaction and the intention of the refinance.
I also suggest getting the process started with the most experienced mortgage originator you can find. You can find my 6 steps to comparing mortgage lenders and interest rates online
Best wishes for your refinance,
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