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How to determine buyout price when doing a qualified assumption

A friend and I purchased a town home in 2010 for 125k.  She wants to purchase a home for herself and I would like to stay in the current home.  We considered a refinance but the home is currently upside down so we decided I will do a qualified assumption with the current loan.  Our issue is deciding the buy out price.  I feel it should be the equity in the home divided by 2.  She feels it should be the equity plus half of the amount we got from renting out a room. The justification for this is that when I assume the loan I will have 3 years paid off.  Any advice would be greatly appreciated  
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August 24 2013 - West Raleigh
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Answers (3)

Profile picture for wetdawgs
If your home is upside down (i.e. you owe more than you could sell it for), there is no equity.  Therefore, there is no gain to split.  You may consider splitting the loss (i.e. request that she pay half the amount under water).     Get an appraisal with a professional (a few hundred dollars that you split) to determine if there is any equity. 

If you rented a room, who got the money?   Did the money go straight to your income or did you use it to lower monthly payments for the mortgage?  If you pocketed it all, then I'd agree with her proposal of her getting half (before tax and she'd owe income tax on it).   If you used it so the monthly mortgage payments were lower for both of you, then you already both benefited.

Other points that will come up include who got tax benefits (if any) of mortgage interest and property tax.   If they weren't split equitably, then some adjustment may be needed.

And finally, if you ever do this again without the benefit of marriage or partnership commitments, then get a legal document written up before you close on the property.
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August 26 2013
You might also remind her that there really is not any equity in a property that is upside down.  If property is upside down that is even more incentive for her to be realistic as you are only option she has to get off of the mortgage without defaulting on mortgage. You should also be aware that when you sell in the future the commission/ closing cost will come out of your share of the "equity".
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August 26 2013
I would spend  $385-450 and bring in a local appraiser who knows that neighborhood. Get an appraisal done. If you don't know one, email me as I am a local Realtor and can give you some referrals.
Also  put all dollar figures on paper, what you both put into the house, repairs made etc.
Re the rental, I would assume you both 'enjoyed' that income relief. I wouldn't think its part of this equation, its past isn't it? Because it helped pay down the mortgage a little bit, you might want to figure out how much, my guess it wasn't a large amount.


Best of luck to you both.
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August 26 2013
 
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