Question: I have a question about refinancing a home loan, and about how banks view a > rental property, and perhaps what order we should do things if we want to > move in the next few months. (move out to the suburbs in the same area – not > long distance)

> We are currently living in a double that we purchased 5 years ago. > Similar homes in the neighborhood have been going for about $65K recently, > but we got it for about $40k because it needed repairs. We got a 10 year > loan, and I pay about $30 more than required each month, for $370 a month. > We currently still owe about $11K on it, and would have it paid off in about > 4 years.

> However, situations have changed. Not only did my wife find out she was > pregnant with our third child recently, but our other two children are > getting ready to enter school. My oldest son is 5, and I’ll be putting him > in a part-time private preschool soon. The schools in our city are fairly > poor – evaluated as a D. We just figured we would be moved out long before > the kids would be getting to school.

> Anyway, to make a long story short, we bought this place instead of > something closer to our “dream home” because it seemed like a good long term > choice for income. However, now I need to put my wife’s desires for a > larger yard, and our desire for a better school system at the forefront.

> She is due in February, so this means that if we are going to get moved, > we should really do it by December, so we have a 4 month time frame. > However, I’m not at all sure how to begin. I’m pretty sure that a bank > wouldn’t give us a second mortgage at this point – we make about $40k a > year, and this place is eating most of it up.

> I believe that perhaps the smartest thing for us to do would be to > refinance our mortgage for a larger amount, and for 20 or 30 years instead > of the 10 we got. This would both give us $ to replace the furnaces and get > both sides into final rentable condition fast, as well as give us some $ for > moving, and maybe even for down payment.

> Complicating things is the fact that my sister has been living on the > other side of the double for nearly 2.5 years. She has been a big help with > the kids, but we haven’t been charging her much of anything to live there. > I went over and talked to her about various possibilities, and that if we > refinanced, we would need to get a lot more rent coming in sooner rather > than later. So I mentioned that she might need to move. This is not the > first time I’ve brought this up – I’ve mentioned it at least a couple of > times since late last year. Her job would never give her enough $ to pay a > higher rent. I was rather taken aback when she said, rather forcefully, “I > can’t afford the higher rents around here. I WON’T be going anywhere for at > least another year.” I have also heard her talking a lot recently on the > phone about redecorating her side of the double, so I now am starting to > think that she thinks of it as her place, and for some reason she seems to > think that she has some sort of long term right to stay there.

> So as you can see, this is a delicate situation. I’m not sure what the > best way to proceed is on a financial front. Should we approach several > banks and credit unions about refinancing our home for a longer term, to > free up monthly payment $ and to give us some $ to work with right now?

> Regarding my sister, she has been renting for about $160 a month – roughly > $250 to $280 less than a 3 bedroom 1,300 square foot would rent for in our > area. However, when she started renting, the place needed a totally redone > kitchen, bathroom, the works. Nobody else would have probably rented there > for much of anything. Now we have a lot more time and money in it. Since > it has been 5 years now since we bought the place, and we are thinking of > moving, we really need to start having the place pay for itself.

> We could probably go up to another 12 months without having her side bring > in its full potential, but I’m not sure how best to handle this situation > without it ruining our relationship. Considering her reaction to my idea of > her moving, should we somehow give her notice in writing now – sooner rather > than later? We really appreciate her help with the kids over the last > couple of years, and we value our relationship with her, but I don’t want > this to turn into some sort of thing where she acts like we never asked her > to move, and doesn’t take it seriously.

> If you were in this situation, how would you proceed:

> A) with my sister, who says she does not intend to move > any time soon, and has ignored hints over the past > year that she should be looking into other housing > arrangements? (at one point she said something about > taking a roommate if we increased rents, but now says > that isn’t likely)

> &

> B) with the financial situation – how can we do things in the right order, > and the right way, so that we can upgrade to new furnaces, fix the last few > things around here that need fixing, and also get moved by the end of the > year?

Answer: It’s a little late, but the best advice I ever got was NEVER do business with family or friends – sooner or later something happens that puts a strain on the relationship. Apparently, you’ve come to that point. If you simply must do business with family or friends, do it in a business-like way – in your case, a written lease.

If you’ve been accepting services from your sister in lieu of rent, only you can determine if it’s been a worthwhile trade. But if you’re going to move and your sister isn’t going to be providing those services as a result, the “in lieu” part of the arrangement will no longer exist, and the rental should be adjusted accordingly.

As far as her redecorating the place – you’re the landlord. She shouldn’t be doing anything of a permanent nature without your permission.

I think your time line is a little longer than you seem to believe. I’m sure it would be nice to be all settled in at a new place before your wife’s due date, but the new baby won’t be going to school for several years yet, and the oldest isn’t yet set to go to public school – you appear to have a year or so before schooling becomes a real issue. That leaves only your desire to move as soon as possible as the determining factor, and you may have to adjust your desires to accept what’s realistically possible.

As what you can do loan-wise, talk to a bank.

If I was in your situation, I’d simply sell the place outright for whatever I could get in its present condition, and move on. If your sister refuses to move, rental arrangements will be between her and the new owner. If you can’t sell because she won’t budge, you’re probably going to need to talk to a lawyer.

No new material below, included for reference only.

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