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So I'm in an odd situation. My mom, who has cancer, was about to be foreclosed on by defaulting on her HELOC. Not wanting to lose my childhood home and seeing an opportunity to get into property ownership, I offered to take over the house. Due to my poor credit, I couldn't go about the usual mortgage route and did a contract sale for $90k where essentially a third-party is a mediator and deed holder. They pay down the HELOC on my behalf, then they'll start paying my brother who is owed $20k. At the end of the note the remaining $20k goes to myself (so I'm essentially paying myself). I'm planning on putting that money right back into the house as it's a bit of a fixer upper. The goal of this setup is to basically liquidate the equity of the house so that my brother can receive his inheritance from my mom.

I have been in the house for about 18 months now and haven't had any issues so far. However, I want to finance the house, settle the contract (which includes paying off the HELOC and my brother), then use the rest of the loan to make repairs on the house.

I practically have nothing in savings (in terms of a down-payment) and I understand that banks prefer to have down-payments or they incur extra fees. I have people with excellent credit in my life who are willing to cosign.

Is there a loan that allows me to pay off the $90k contract that doesn't involve a down-payment?

  • Can you clarify ownership of the home? You said this third party holds the deed, but it sounds like the original HELOC is still open - is the HELOC in your mom's name? Where's your name on all this paperwork? Options for refinancing the outstanding debt will depend heavily on who actually owns the house and the debt. – dwizum Dec 13 '19 at 18:40
  • That's what makes things odd. The original HELOC is open and in my mom's name. My name is in the contract that says once contract is satisfied then the deed gets transferred to me. Until then a title & escrow place holds the contract and deed, I pay them and they pay the bank. – Lux Claridge Dec 13 '19 at 20:44
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It is possible that you may not need additional cash as 'down payment'.

What a bank really wants from a down payment, is that the value of the home that you own is worth more than the value of the loan. If the home is worth more than the loan, then the market can go up or down a bit in pricing, and the bank will still be able to sell the home for enough money to recover the loan, if they have to foreclose on you.

So in your case, if the value of the home has risen in the last 18 months, then it may be worth more than what it would cost to pay off the lenders.

Note that even if you can do this, doesn't mean you should - be careful about taking on more debt than you can afford, regardless of what the bank thinks you can afford.

Also, I assume your credit should be better if you've been successfully making payments for the last 18 months, so other financing options may be available to you.

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  • The county seems to think that the house is worth about 30k more. However, they don't seem to be aware of the fixes needed. As far as my credit being better, the HELOC isn't in my name so my house payment history is moot sadly. Though I have been doing better these last couple of years. Just waiting for my mistakes to fall off my history. – Lux Claridge Dec 13 '19 at 16:18
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    @LuxClaridge Be aware that a property tax assessment is likely not very accurate - see if you can find comparable homes to yours on public real estate listings, and check what price they sold at / are listed at. May give you a better sense of value. A bank will likely want a valuation done on your home anyway, so they will help you with this. – Grade 'Eh' Bacon Dec 13 '19 at 17:25

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