When you're facing foreclosure and you don't qualify for a refinance, consider asking mom and dad to help you out of the jam.
Kids in TV families are always asking their parents for help. Remember when Arnold and Willis Jackson were accused of robbing their neighbor's apartment on Diff'rent Strokes? Mr. Drummond helped his kids prove their innocence, despite the presence of some damaging circumstantial evidence. If you're struggling to meet your adjustable-rate mortgage (ARM) payments, it could be time to follow Arnold Jackson's lead, and ask for a little parental redemption.
Being stuck in the web of an inappropriate mortgage forces you to consider the possibility of foreclosure, particularly if you can't sell your home and your mortgage refinance applications continue to be declined. It's a high-stress situation that offers no easy answers.
If you're not ready to play victim to foreclosure just yet, your parents might be able to help you out. A parental bailout may not be the preferred course of action, but it could be the best way to survive this temporary crisis. Parents can help you in one of three ways: by giving you money, co-signing on your refinance, or buying your property.
You might be able to negotiate a refinance if you had some cash available to reduce the debt balance. Your parents can give you up to $12,000 per year without tax consequences; if you're married, they can give that amount to both you and your spouse. Split up the gift in two separate tax years, and your parents can donate up to $48,000 to your cause. Lenders may want to see a signed statement from your parents stating that the funds do not need to be repaid.
The gift of a signature
Your parents can also co-sign for you on a mortgage refinance. As a co-signer, they're agreeing to pay the debt if you default. The lender may approve your refinance with this additional backing; but having a co-signer won't help you make the payments. Before asking for those parental signatures, make sure that you understand why you didn't qualify for the refinance. Then, ask yourself honestly if this mortgage is realistic for you and your household. If it isn't, find another solution. You don't need to get your parents involved if foreclosure is inevitable.
An investment gift
You could also sell your property to your parents, and use the cash to pay off the loan. Once the transaction is complete, your parents can rent the property back to you. Or you can move to a smaller rental, and your parents can rent it out to a third party.
While your parents may not be as financially well off as Diff'rent Strokes' Mr. Drummond, it's likely that they're more stable than you are. Try opening the conversation-you just might end up with a solution to your mortgage dilemma.