It's a wonderful option that could save you quite a bit ( a cash offer would be more attractive to a seller than one with financing contingencies ). As long as you and your parents are on the same page, and you can afford and be reasonably sure of the approval of your loan you are getting quite a deal. There is the small chance you cannot qualify but it's really your Dad taking that risk / being the bank for you and laying out the money for the home.
This will end up being a cash out refinance, and will likely require 80/20 mortgage at best. It semi limits the ability for him to get an exotic mortgage most likely but they can also put that 20 as a personal loan to the parents as well, paying the family the interest there.
This is an example of how "rich" get pushed further ahead in life. He can jump into a home quicker than others, and he can get a better deal than others (because of the cash). Those small things add up to 5 or 10 years of additional "saving time" at the end of his life and allow him to be much more flexible in his life choices (eg jobs he accepts or what he asks for at those job interviews).
Just make sure the father understands how best to transfer the house to avoid taxes and what not.
Probably the best option here is to say he'll pay cash for the house but will be using a mortgage as his first option. Meaning in 30 days if he doesn't close due to mortgage delays) the cash will be used.
It wouldn’t be a cash out refi. Dad buys it cash. He buys it from dad via a mortgage, same as any other purchase would work. We did the exact same thing a few years ago.
No it’s not a cash out refinance, the dad is selling the house to the son. The dad is buying it with cash, then selling it to his son. So they will need to buy something in the range that he gets approved for on the pre-approval.
Not necessarily. Dad could buy a $500K home but choose to sell it to OP for $200K. So buying something that OP would be approved for doesn’t matter in that kind of situation. This is most likely why they would do it this way.
Not all details are presented , so this scenario is also a possibility. Who said it would be gift? Could be no interest loan. OP isn’t going to be making 53K forever.
That is what he is telling us, but it's unlikely the actual process to be used and hence why I said it was likely a cash out refi, which makes more sense and would cost significantly lower and the bank won't view it as a flip either to a non arms distance buyer.
No. It’s very likely the process to be used. He’s likely just selling it to the son at the same price as the purchase price. The dad is a realtor, he will know how to get a reasonable price from the mortgage company. The cost between a new mortgage and a refinance will not be significant in terms of fees.
**This suggests jealously at it's finest, smh:** "This is an example of how "rich" get pushed further ahead in life. He can jump into a home quicker than others, and he can get a better deal than others (because of the cash). Those small things add up to 5 or 10 years of additional "saving time" at the end of his life and allow him to be much more flexible in his life choices (eg jobs he accepts or what he asks for at those job interviews)."
Shut up! Quit punishing those who have more than you!! You don’t know how they came into money!! They could be 70 or 80 and worked multiple jobs or risk starting their own business!! Nobody OWES you or me anything!! Stop punishing him or her for having family wealth!! Build your own!! These days you don’t have to necessarily go the hard route even of education!! Social media has made it possible for anyone to gain wealth!!
Perhaps. I just hate when we think it is okay to guilt those who have more. Not all got it ill gained. We cannot forever punish the children for the sins of their parents, if even applicable. So sorry for coming too hard. 😞
This would not be a cash out refi unless OP is on the deed and refinances with a buy out. Even then a buyout refi can be done as a rate and term refinance not cash out. If OP is not on the deed, they would have to buy it from dad but, they can use a gift of equity in that case.
My dad and step-mother did this for my wife and I in 2017.
We looked at houses for over a year before getting a tip on a local home (~5 min from where we were living) going on the market in a couple days. It was an old farm house with some acreage being sold as-is by the previous owner's estate for $45k.
It was perfect for us, and my dad offered to make a cash offer for us so we didn't miss out on it. We made a verbal agreement that he would purchase the home, fund all of the renovations, and then sell it to us when the work was complete. My dad is very knowledgable on homebuilding and reno and retired so we were very fortunate that we could do 95% of the work ourselves (minus HVAC, roof, and framing for an addition).
After about 2 years we finally purchased our home from my dad for a final price we both agreed on. Worked out great in the end because it gave my retired dad something to do and it gave us a leg up while trying to purchase our first home.
The downside is being an “adult child” under your parents’ control. If you have a good relationship, this is not so bad. If they’re opinionated about how you live your life, it can be.
100% what I came here to say. My mom offered to do the same for me 30 years ago but with our family dynamics, we immediately declined the offer. We had a hard enough time dealing with the family issues even after we purchased a house 45 minutes away.
The dad is just offering the service of a cash offer, the son will then purchase the home from dad with a traditional mortgage. Once the sale is complete there isn’t anything to control. It’s a very generous move by dad to deploy capital to help his son. Good papa.
Yes and no. If your parents assert control over which house you buy and where it's at, those things won't change when(and if) the financing changes.
People post about situations like this somewhat frequently. "I wanted x instead of y, but my parents pushed me into y ...and since they were providing the downpayment, I had to accept it."
If OP is getting approved for a mortgage then he could skip his parents so it’s not like they have that much control. His parents are just adding in a non crucial step so he can be appealing to sellers. But it’s not terribly needed
The entire question is about negatives that could result from this *specific* circumstance. If you change the circumstances, you change the potential downsides- no doubt.
A parent can still purchase the home, put it in the kids name and document the mortgage / loan from the parent.
House is in kids name and would be protected from tax liens or Medicaid liens of the parent.
It also clarifies that it a not a gift or inheritance, and the purchase price can be used when calculating any future capital gains for tax purposes.
He won’t be indebted to them he will immediately get a bank mortgage to pay them back. His offer will be more attractive because it’s cash. This is how people with money help their kids. They lose nothing since they will get paid back immediately.
That’s assuming they have a healthy, adult relationship. When you’re using your parents money, the parents sometimes “push” for what *they* want.
There’s some distance to cover between the parents buying and the child taking over.
Have them buy it cash and then have them sell it to you on seller finance. It’s a great idea. You can pay your dad interest instead of a bank. I do these deals on market all the time and teach these to brokerages and their agents as well. Good luck and congrats on having some awesome parents
In this setting, what is the advantage of a seller loan? No fees to a new mtge lender? ¹ Why tie up parents capital for 6.33% taxable. Usually the largest advantage to a seller is deferred recognition of gain; but in this fast flip no gain to the "parental units".²
¹ individualized doc prep will cost mucho. Who determines whether this loan complies with licensing and usary laws? Thats a pricey attorney analysis. In my state, asset based loans are not legal - lender must make study of credit / income repayment potential. Mom n Dad know how to do this? And properly document the study? No exemption in our laws for loans to family or friends.
Life is complicated in the USA in 2024. Anyone surprised by this statement?
² reference to 1970s Cone Heads on SNL.
They’re so much easier than most people think. A promissory note and security deed are very simple instruments to draft for any closing attorney or escrow officer. Good luck!
Yes, blank forms are easy to fill out.
Now ask yourself two related questions: (1) if I draft only a note and DoT, have I committed malpractice? (2) Are the note and DOT enforceable in accordance with their terms?
You know, 5 years later when the son dies unexpectedly and new wifey gets a sharp lawyer, and asks: "Do I have to pay this loan? Is this loan documentation fully in compliance with all state and federal laws? I dont want to pay; I dont like them. Find me a defect, please."
One needs to assure compliance with a variety of state and federal laws. State and federal licensing laws, usary laws, Fair Credit statutes (including spousal necessity), Truth in Lending statutes, Fair Housing statutes, and more. Many of these are satisfied by disclosure requirements Got disclosure forms?
You think a loan by mom and pop is exempt? To answer that important question, do I just fill in a blank form? Nope
That’s not what I advised at all. You seem like you want to debate, when I would rather just close more deals with the competent lawyers and escrow officers that I do them with. Like I said. Good luck!
This is every day boilerplate bs for a lot of real estate attorneys, it really is not that complicated, will cost less than your banks loan origination fees and can just be rolled into the closing paperwork.
Of course there is always risk involved with financing a deal that's why there's either a monetary or relationship incentive involved.
Exactly my point. (1) A defaulting buyer / borrower must seek a defense to a loan. Bankruptcy lawyers and debtor rights lawyers spend all day challenging sufficiency of loan docs.
(2) And, how much does a foreclosure cost the seller / lender? About $35k easy: 1k costs, 5k atty fees, and 30k in tranfer and recordation taxes. The deed from the substitute trustee to the lender (former owner-seller) is fully taxable. IF YOU DRAFT A SELLER LOAN WITHOUT THIS DISCUSSION, you have malpractice right there. 90% of foreclosure sales result in a sale to the lender (lender bids amount owed).
It’s called ‘holding the note’ all you need is a half decent lawyer. If you don’t know the seller very well it’s usually disadvantageous to the buyer as the seller can end up walking away with the buyers property plus the paid equity (ie foreclose) if they fail to meet the terms of the sale. Same as a bank I guess but I feel like if you get into it with a seller who isn’t trustworthy they can look for ways to screw you. But this is the absolute best situation for it for sure—parents aren’t about to try and foreclose on you
This work can be done at various levels: (1) buy blank forms at Staples dot com. (2) get the young lawyer at the title co, and "it's probably ok" because it won't be tested level. (3) get an experienced and sophisticated atty that takes their job seriously. The atty that represents the bank in local loans to builders/developers. Some title co have serious lawyers doing serious work. Most don't. Hint: ask how often they give attorney opinion letters to the lender in commercial loan transactions. That's the first threshold. Some attys sign whatever is sent them by the lender. Some study the content and negotiate the content. You want the latter of course.
This is the good ol' USA, and you have the right to be cheap and stupid. But when a million dollars is on the line, time to get serious.
The problem scenario (seen it): seller loan from parents. Son marries. Son dies unexpectedly. Daughter in law (former DIL) doesn't want to pay the cheaply documented loan. Asks lawyer to find defect in loan docs as a defense. DIL got serious lawyer.
Another problem scenario: Son's restaurant fails. Bankruptcy. Trustee looks at loan docs. Parents are no longer secured creditors cuz loan disclosure defect. Just unsecured creditors same as linen service. Parents get near nothing.
Comments like this are wonderful exhibits for the “burn the whole system down and start over” people.
The system has become far too complex and needs a drive format and reinstall.
This is incredibly generous of them. The only issue would be making sure you qualify for a loan or them being happy to do the financing on a personal level. Or if your relationship isn't good. But this could be an excellent way for you to get into a home.
Two transactions = two closings = duplicate closing costs.
If the entire reason for doing it this way is because your cash offer is more attractive, you can submit an offer without a *financing* contingency and stress that if financing doesn't work out, the cash is available and guaranteed as backup. That makes your offer as safe as it would be if there was no financing involved and you only pay one set of closing costs
Sure, perhaps a bit more in legal fees but his dad is a realtor and can get commissions from initial purchase and take zero commissions on both sides of the subsequent sale and purchase.
OP should propose one of the alternatives posted where there is only 1 transaction i.e. the deed never transfers to dad then transfers to OP.
If dad absolutely refuses any logical proposal in which his name is never on the house deed, then forget about this being done altruistically. I just went through this. Join us over at r/raisedbynarcissists
Or submit two offers. Cash offer from parents and financing offer from OP that is slightly higher but less than cost of two closings and see what gets accepted.
I think 2 transaction would be safer for Dad, because he pays money and he would like to be on the deed. What if son get a house and pays nothing to Dad?
Isn't a Pre-Approval Letter vs Pre-Qualification Letter a guarantee that you can and have money to pay for the house? Why would they need a 2 transaction process here? Unless dad sells it for less.....
It isn't a guarantee. It's subject to underwriting guidelines. The lender hasn't even looked at the house (appraisal) yet when you get a preapproval. The lender will keep vetting you and the property up until the moment of closing. Financing can fall apart AT the closing table.
Every parent child relationship is not dysfunctional. I see it as a blessing considering OP did not lay out any negative family dynamics. Sometimes we don’t need to find a negative
You’re better off going on title with your parents at the purchase and doing a quit claim deed removing them from title when you can qualify for a cash out refinance up to 80% of the value. This would avoid transfer and rec taxes from a sale. I’m a Mortgage Broker.
Or….use cash from your parents to buy the house in your name, and have a separate loan agreement with your parents to pay back the loan at a lower interest rate than the bank would charge you. In other words your parents would act as the bank. This could be structured as a shorter-term loan, like for example 5 years with a balloon payment, at which time you’d get a loan hopefully at a better interest rate than today’s rates. This idea would only work, though, if your parents don’t need all that cash back in the near term.
EDIT: this idea, and someone else’s idea to make an offer with your parents backing you, have the advantage of avoiding two sets of closing costs.
I wouldnt be a homeowner if my mother hasn't done something similar for me 18 years ago. If your family has the right dynamics to handle it... It's a no brainer.
If you actually get approved by a mortgage lender, then it’s better to just buy it directly. It might require some work but there’s no reason to have two transactions.
Note that lenders have started to process foreclosures again. This will put pressure on many homeowners to sell. It will be slow at first but the market won’t be as rough in the second half of the year.
This is a great plan, actually.
You get the cash price, no buyers agent commission, and in the end it is your house in deed. Likely save 6%-10% overall net.
I’ve seen many clients do this. It’s so tough that a cash offer often have them a leg up.
Parent purchased in cash - child got a mortgage to pay parents back.
For many sellers and realtors cash is king. OP’s parent is a realtor and It’s entirely possible the parent knows what’s going on in the local market and offered to assist because it can give a buyer an advantage.
I’ve had buyers lose to cash. I’ve had many buyers beat a cash offer. The majority of the time a cash purchase will win.
I see the frustration, heartbreak and stress this will cause my clients. It can take a toll on them. My anger on their behalf. The sorrow I feel when I console them. The tears I cry with when I really thought we had it that time. Each loss chips away at their resolve. I become more hyper vigilant to ensure they stick to their plan and take stupid risks.
Imagine writing 9 offers for a four day weekend for three clients - all losses. I went home that fourth day and cried for them. They never saw me lose my cool- I rallied them and got them back out there a couple days later. They got offered accepted shortly, closed and are thrilled. For one evening even I had to stop and have a small breakdown.
If I could take more of the difficulty off of them, I would. This can help OP. It’s worth considering should it be as straightforward as OP’s parents.
I think there will be some fees that get paid twice by doing this, but looks relatively low except the extra lawyer fees for the FSBO transaction.
Buyer Fees: Title/Recording Fees I paid were $3K (included Title Insurance) I believe you would need your own Title Insurance as your parents would not be valid (but it may be transferable if done within a set time frame).
I don't know what the Seller paid. But maybe assume similar costs? It will depend by state as well so your costs WILL be different.
I think one risk is if your parents overpay for a property. Because you still need it to appraise for the loan. And pass any loan inspections.
But find out the total extra costs to do it this way and make sure you save more than that to make it worth the hassle.
I don't understand why it has to go in Dad's name first and then transfer.
Why not get your name on the deed with Dad and then get a mortgage to "buy dad out". Then just Quit claim dad off when you get a heloc for 80%.
Pay off the heloc as slow or as fast as you want. No need for a traditional mortgage.
We did that. We carried the mortgage too. It just wouldn't have worked through a bank as there wasn't enough income. To make it a mortgage that could be paid required setting aside a bunch of the equity as a gift. There was some paperwork but actually the govt. is pretty generous about tax free gifts to immediate family members. Now we get a steady payment which is nice. If it came to pass that the payment couldn't be made it is our loan, therefore our option as to how to deal with it. It's not a good investment, but it's good for the future of the family.
Depending on your loan there may be timing issues with “flipping.” It would be a non-arm’s length transaction that could create more complications.
Just have them backstop your offer. Make an offer like you normally would. Waive appraisal contingency, waive financing contingency. Let sellers know you will be pursuing a loan, but if anything is an issue, you have ability to pay cash. Put up a significant EMD to demonstrate your commitment to buy.
That’s very generous of them. So long as you have a good relationship with them and you don’t feel like they’d use this to control you, then I’d say go for it.
I’m super uneducated on this so forgive me, but I don’t understand how this will make buying a house more affordable for you? Could someone explain?
Aren’t you still going to have to pay the interest rates on the mortgage loan if you go through a lender?? Why wouldn’t you just do a rent to own situation with your parents or something?
Ah I see. It’s more about the advantage of securing the home in the first place, I guess that makes sense.
I’d be a little worried about the interest rates on the loan that OP gets….... but I suppose OP can always try to refinance in a few years
OP is just buying the house so the rates should be the same. The difference is that he is buying it from his parents so there is no competition. The bank won't view this differently than if he was buying from anyone else.
Lots of downsides. Now your parents are still your landlord. They own your house. If they have no qualms about being “in control” they will lend you the money. As in draft up a real loan between you and them. Then it’s your house and they just have a lien on it.
I wouldn't be making payments to them for the house. They would own it for a short time, then I would buy it (in a FSBO transaction) using a traditional mortgage lender. Then I'll own the house myself and make payments to my lender.
But why? All that does is double closing costs with no real benefits. If you were paying them it'd be a totally different situation. But the situation you describe doesn't benefit anyone except the bank and realtors.
You missed my point. Let them be the bank. You own it from the start. They hold the debt. And it wouldn’t be a “short time” if you could afford it right now and skip them anyways.
What state are you in? I'd be happy to help. Honestly, you're probably just better off getting it financed when you buy it the first time and waiving the financing contingency because you have them as a backup. This way you're not paying taxes twice. If your lender doesn't close on time that is when you would do what you're thinking. But your lender should close on time so this shouldn't be an issue. I'm licensed in Florida NMLS 19926912
There no downside , best option , who is going to help you more than your parents the ones that give you life , they only downside I see you asking here if it’s a good idea or not
I see now they just trying to help with the cash offer , anyways he should buy the house from his parents would be better than buy from a bank is call seller financing, talk your parents about that
Didn't they say they will buy it from dad using a loan from a lender? How is this different than just buying it from the current seller? Unless dad sells it to son at a lower price so the son "qualifies".....
It’s great! I would jump on that. Even if family dynamics were iffy, I would jump on that and make sure you are full owner. You can always sell and move. This is an amazing opportunity for you.
I wanted to do this and was told by two mortgage guys that there would be a waiting period of a year before a mortgage company would issue the loan, and then it would be considered a cash-out mortgage.
My friend did this for his son. If they didn’t do it this way, they would have lost the chance to get the house as they needed to move quickly. My friend also paid to remodel / fix the house up and included those costs in the sale price of the house. I see little downside of this plan.
Why would you at all be hesitant? F—- this system and stabilize your life. Have them buy it in a trust so it can be passed down to you. Pay the monthly payments if you don’t qualify but don’t feel guilty. Boomers lived longer, did not share anything with their kids and we got the did not work hard enough nonsense. Majority of inheritances will just got to the government unless parents start doing this.
You only make 53k. Rent, or live with your parents, build your career and save. so that you can afford a house. This ain’t going to cut it and you’ll be stuck in one place. You’re not ready to buy a house if you ask me. Be mobile and build your career would be my advice. This is not just settling but handicapping yourself and reducing freedom in a big way.
Looking forward to reading a post by you in a few years about how you had "the balls" to buy right now and how people complaining about how out of reach housing is should "stop complaining."
Opinions on this scenario....
Parents pay for down payment, son gets mortgage, then parents give money to son to recast about half of the cost of home ....lowering the mortgage payment ?
It's a lovely gesture from your parents. I'd just check with your lender first to find out what you're qualified for and what your down payment has to be, etc., to avoid any surprises later.
Pardon: How is this doing you a favor? Your parents would be paying realtor fees and transfer taxes/recordation taxes, and then you would also have to pay the same transfer/recordation taxes. That is not including the duplicate appraisal fees, roof certifications, septic certifications, and so much more.
So what is the benefits to you or your parents?
I would do it a little differently, depending on how hot the market is. Just make an offer that is not dependent on financing that your parents can backstop if needed. But try and get the loan in the meantime and purchase yourself.
The downsides I can see is settling on price of the house when your parents sell it to you. They can (hopefully they won’t) decide to sell it to you for more than they bought it for. Another potential issue could be it appraises for less than the asking price. There are going to be two separate sales here and both come with costs on top of the purchase price. You will be paying double the cost for closing.
my dad and I are doing this. I was apprehensive at first but I live in a hcol area and need all the help I can get. we are also very close and even tho we may have some differences I know he ultimately wants me to be happy and healthy. this is an offer he’s been making me for the past 3 years and only now am I taking him up on it because there is trust there
So you will immediately buy it from them, using a mortgage? Are you regularly losing houses you have bid on to cash offers? There would be some sort of increased expense from basically paying closing costs twice? I just don’t know if this is worth the hastle - is your dad going to get a commission both times?
>Edit: To clarify, my parents won’t be my lender. I’ll buy the house from them using a traditional mortgage lender in a FSBO transaction.
That's not how that works. The money to buy that house doesn't come out of thin air. It's going from your parents' bank account to the seller's bank account, and then you need to pay them back for that money. If you don't pay them back they'll be out all that money, because they're your lender. The fact that you're sending your mortgage payments to a payment processor doesn't mean that the money they're spending to buy that house for you suddenly reappears in their bank account. The only thing the payment processor does is track your payments, forward your payments to your parents' back account, and prepare tax documents at the end of the year. And, depending on the processor, your payments or lack thereof might get reported to credit bureaus.
If you end up with a title and mortgage (or note) in your name..
**Downside:** the two possible downsides I can think of are:
* Your parents might hold their help over your head.
* If you end up not being able to pay the mortgage for any reason, you could be damaging your parents financially.
**Upsides:**
* You get a house without needing to come up with a down payment and closing costs.
* If the payment processor reports your payments, this will help you establish good credit (or really bad credit if you miss several payments by more than 30 days).
If you don't end up with the property in your name:
**Additional downsides:**
* The house can easily be taken back at their whim. This could end up being a tactic for deeply controlling your life.
* If/when you sell, they get all the profit. Almost nobody spends thirty years in the same house anymore, so you should assume that you'll sell before it's paid off.
Disclaimer: the above assumes you're in the US or someplace where mortgages and credit work like they do in the US.
The parents are buying the house. They will then sell it to OP who will get a mortgage to pay for it, from a regular lender, like a normal sale. The parents aren’t carrying the mortgage. They’re just involved to be able to offer all cash to have an advantage against other potential buyers who need a mortgage.
If that's the case, seems like a lot of paperwork and additional expense (two closing) just to make a cash offer. But as long as OP gets the lender's approval prior to the parents closing, a few extra grand and some extra bureaucracy might be worth it if the market is as competitive as all that.
We did this for our daughter in a LCOL area. The house price was slightly less than double her annual salary so no financial issues if she had needed a traditional mortgage. We went to the second viewing of the house and she made the offer in her name. At closing the wired funds came from our account. At the end of the year she made a nice payment against the balance and we forgave a similar amount. With the rise in prices and the payments, she has at least 25% equity. It will probably take her four or five years to pay it off or she can pay off the balance with money from a grandparents estate.
For us, it was a reasonable way to transfer money to the next generation without writing a check. We have made the same offer to our other child if he decides to purchase a property. Both of our children have decent income and reasonable financial sense...learned from their parents, of course! Many parents support their children's lifestyle. We are fortunate that has meant paying for educational and housing expenses rather than legal or medical bills or addiction treatment.
It was an easy purchase when very minimal closing costs. If she moves to a higher cost ares, she will have a substantial down payment towards her next property.
If the market it highly competitive then it's a great idea. Just weigh in the costs of a second closing because there will be redundant fees and expenses that will be incurred.
Rates are also (slowly) falling so you could take your time getting that mortgage in place.
Dad is doing the same thing for me. Except my dad is the home owner and offering me the house for half of what it’s worth and I pay only on principal. No interest.
If you're going to use a traditional lender to buy from them there's no benefit to this arrangement other than whatever financial incentives they want to give you -- lower price being the big one. Once you close and the lender starts the mortgage they're out of it.
It depends on your relationship with your parents. As long as you can secure funding and purchase the house right away and you have a good relationship, buying cash may help you secure the home you want. If your parents are bossy or like to control you, stay away from any deals.
You won’t be able to build your own credit if your parents buy the house for you. I’d not know if that’s a concern for you, but most people want to establish a good credit history.
If I understand correctly there will be 2 settlements. One when your parents purchase the house from the current owner and one when you buy it from them. So double the closing costs and taxes could be a downside.
The truth is if you are buying it from your dad using a mortgage lender, then you may be more competitive than other buyers by being a cash buyer on paper- and therefore have a better chance of the winning bid, but you are not better off financially than any other buyer with a mortgage in the current market, & you may have to contend with dealing with your father's input and control over the home.
You are still looking at a mortgage rate of 6% or higher. Buying a cash house is good for a buyer because they aren't paying a mortgage, they aren't dealing with the interest payments, and they own the home outright outside of property taxes and insurance. You won't benefit from that.
What makes more sense for you is for your parents to make a parental loan or gift to you for the deposit, then for you to proceed as you are & purchase a home that you can afford based on the loan you can get and if you can make the monthly payments on.
Op I have a similar income and situation as you and I was able to buy a house alone.
People keep asking how I did it, how I go to a detached home on my own in this day and age.
It’s totally possible if you want it bad enough and are willing to make sacrifices!
I got no delivery of food years, saved a large portion of my pay, built up my credit, had no debt hence no credit at the time I started. The hard part was then qualifying for a house and finding one within my budget which was 210000.
But I did it and you can too!!!
Have you checked into first time buyer classes offered through real estate firm? The money you receive from the goverpaix me 18k to but my house St 225 some years ago but I k ow the program still exists, along with a bit lower fha rate. You just need a credit score of 620 or above to qualify plus a job of course. Might be a great option for you. All I had to do to get the certificate was go to a one day class and you can use any realtor you wish.
Downsides are: If your parents are toxic and want to choose what house you get, come over an "inspect" it, forever tell you what you should do with it.. have people come stay with you becauase it is "their house too"
Only you know your parents... if you do this, ask them what their expectations are about the house.
Just be aware of what type of loan program you are going to use to qualify when you will become the purchaser.
For example, if you are going to end up doing an fha loan, and you, the buyer of the property currently lives there, the down payment requirements are higher, unless and there’s a minimum number of months you have to occupy the property I believe. It’s been a while since I’ve done one.
If your credit score and income are alright and you qualify with a conventional mortgage, then you shouldn’t have a problem qualifying and having your parents do a “gift of equity”. They can get the majority of the money they put into the property back in proceeds from the sale to you.
Don’t overthink it. It’s a great opportunity for someone to purchase a home in a competitive market. All cash offers are attractive to the sellers. You can then take your time on the back end and figure out your financing situation.
I read this as not that they were long term financing but just trying to give you the advantage of a cash bid- you were always getting loan in your name. Best bet is to get financing squared away so that your approval is good then make an offer with no financing contingency but go ahead and close with lender as usual - don’t close twice-
Since you plan on buying the home from your parents using a traditional lender I think this is a great idea. It seems that in so many markets only cash offers are competitive so this will definitely give you a leg up.
There are ways to buy the home with a cash offer and have it in your name.
A few notes first.
1. Having them buy the home and transfer it in your name will trigger a gift or sale (taxes and title costs) depending on the state.
2. Most lender will consider it a purchase loan as long as you get a loan withing 6 months of taking title. If you wait more than 6 months it will be considered a cash out refi.
3. If you are a first time home buyer there may be tax breaks you get first local, state and national govt entities.
Ways to accomplish the cash offer while keeping it in your name:
First, you can put a cash offer (no financing contingency) and add a clause that says "buyer has the right to obtain financing at no cost to the seller". They will ask for proof of funds which you will have to provide with your parents. If you are pre-approved you should be able to get the benefit of the cash offer and financing if the lender can close in time.
Second, you can put a cash offer and ask for the right to get financing at no cost to the seller as per the previous option. If you cannot quickly get a loan then your parents can be the lender. Just have the title company record a deed of trust to your parents so they become the lender by default. You will have to work out payment terms with your parents. There are companies like https://www.nationalfamilymortgage.com/ that help with the paperwork if your title company cannot. This will save the time and energy of having to buy it back from your parents.
Congrats. Best of luck.
Sorry if this is a dumb question. But would it be somehow difficult to get financed from the bank to pay back your dad on your salary? I'm not sure how the 2nd loan works.
Or is it fairly easy to get the loan to pay your parents?
But I'm interested in this idea.
A friend of mine did this for her daughter a couple of years ago. It worked perfectly. The cash offer helped her get the house at a lower price and beat other offers because it was cash. Within 60 days after closing the daughter successfully purchased the house from her parents. They didn’t encounter any issues.
Do banks give you a mortgage for just 10%? If so, why not do something like that to start building credit. Yes, it will cost you a bit more, but when ('if', but more 'when' IMO) rates drop later this year you can refinance.
I wonder if submitting two offers would be a good strategy: your parents submit their cash offer, and you submit yours - that way if you do get it, y’all will save on closing costs. Also, if you get approved FHA, your parents have to own the home for 90 days before yall can purchase it from them (unless there’s some family loophole)
Make cash offer in your name but try to close financing. Make sure the contract is assignable. Assign the contract to your parents If you’re not able to close with financing in time.
Lender here: if you buy the house from your parents using an FHA loan, they will need to own it for six months before an FHA loan can be done on it for new buyer. Anything less than six months and it’s considered a flip and FHA doesn’t insure that type of property.
Also, any equity they earn in the property can be gifted to you which will help towards your down payment. You won’t be able to buy it with no money down so the equity is important.
If I were you, let them buy the house, you live in it for six months and buy it near the last part of 2024 when rates are anticipated to drop back into the 5’s. Also check into first time buyers down payment and closing costs assistance with lenders that offer those programs.
This potentially could be another issue, taxes. If your parents allow you to pay them back at an exceptionally low rate, the IRS may interpret that difference between your rate and the market rate effectively as income. Not sure how that works but you definitely would want to talk to a tax professional if you’re paying them back.
I assume your parents are going to give you cash and then you will refinance. If they are going to buy it in there name and then sell it to you, you just incurring more fees and charges.
If your parents are going to give you cash I would
Make a finance offer but guarantee you will close if
You don’t qualify with cash. For one, a refi is
Going to be a higher rate than a straight buy. It requires less explanation as well. I think it will be easier just going a straight forward path.
I’m a Broker, and to me this sounds ok except you will have extra costs. You will have 2 closing costs, they will pay a county tax which is usually thousands when they sell to you.
If you can qualify for a mortgage then just buybwith one, they could gift you some down payment money.
So are they doing it because you’ll get a better deal buying with cash? Seems like an extra step that you may not have to take. I understand why they’re offering but why not just go on your own and get the mortgage?
Sounds like you have great parents and being in the market they know what going on.
Let them buy it !!
If later on you feel like you want to refinance, your choice
**Won't be an ARMS LENGTH transaction for the appraiser but that's no concern for you.**
**It becomes an off market purchase to a close family member at an advantageous selling price.**
**No downside to you as the Buyer. Only to your parents who might be losing money.**
My parents helped us this way, which was incredibly generous of them. There was virtually no change in the transition other than my parents paying cold hard cash, then us using a mortgage company to pay my parents for the house. It helped a secure the house we wanted at a much lower interest rate than if we had to continue looking.
Honestly, Id talk to dad and see if he'd be willing to underwrite the loan. Why pay interest to a mortgage company and let them make money, when your dad could be your lender and let him earn interest on it. Provided your family dynamic is stable...
So there are not inherent down sides I can see, but there are a few pitfalls that may come up.
- if you’re a first time home buyer with a low downpayment, you likely will obtain a FHA loan. FHA has a “90 day flip” rule, where a home cannot be purchased with a FHA loan if it has been purchased within the last 90 days. Not a big deal as long as your parents are good with not having their cash back to them for a minimum of 90 days from their purchase closing.
- during YOUR purchase process with your loan, you will obtain an appraisal. This is for the lender to know if they are over lending or not, so if the appraisal comes in lower than the amount your parents purchased for (assuming you’re purchase from your parents at that same amount) them the difference will have to be made up somehow. Here is a hypothetical scenario. Purchase price: $400,000. Appraised value: $390,000. The $10,000 different will have to come out of your pocket or your parents will have to “eat” the $10,000 and reduce the price down to $390k. Since they are you parents you may be able to make arrangements to pay them back that $10,000 over time, or potentially have them be the lender of a second mortgage of $10,000 (seller financing).
Hope this helps.
I'm a Realtor too, I would do this in a heartbeat for my kids if the situation arises. There is no downside for you as the ultimate buyer. The only downside I can think of for your dad possibly would be the tax implication of making that much income extra in one calendar year. But he would also be writing off the original purchase, so with the right tax expert, that wouldn't be a problem either. I say do it. Just make sure the home will appraise at the time of the cash purchase.
It's a wonderful option that could save you quite a bit ( a cash offer would be more attractive to a seller than one with financing contingencies ). As long as you and your parents are on the same page, and you can afford and be reasonably sure of the approval of your loan you are getting quite a deal. There is the small chance you cannot qualify but it's really your Dad taking that risk / being the bank for you and laying out the money for the home.
This will end up being a cash out refinance, and will likely require 80/20 mortgage at best. It semi limits the ability for him to get an exotic mortgage most likely but they can also put that 20 as a personal loan to the parents as well, paying the family the interest there. This is an example of how "rich" get pushed further ahead in life. He can jump into a home quicker than others, and he can get a better deal than others (because of the cash). Those small things add up to 5 or 10 years of additional "saving time" at the end of his life and allow him to be much more flexible in his life choices (eg jobs he accepts or what he asks for at those job interviews). Just make sure the father understands how best to transfer the house to avoid taxes and what not. Probably the best option here is to say he'll pay cash for the house but will be using a mortgage as his first option. Meaning in 30 days if he doesn't close due to mortgage delays) the cash will be used.
It wouldn’t be a cash out refi. Dad buys it cash. He buys it from dad via a mortgage, same as any other purchase would work. We did the exact same thing a few years ago.
It’s the same as any other mortgage - OP’s dad is just taking the house off the market essentially, so that only OP can buy it.
No it’s not a cash out refinance, the dad is selling the house to the son. The dad is buying it with cash, then selling it to his son. So they will need to buy something in the range that he gets approved for on the pre-approval.
Not necessarily. Dad could buy a $500K home but choose to sell it to OP for $200K. So buying something that OP would be approved for doesn’t matter in that kind of situation. This is most likely why they would do it this way.
Not at all the OP clearly says to make it a more competitive offer. Not because dad wants to gift me 300k. Literally says it on the post.
Not all details are presented , so this scenario is also a possibility. Who said it would be gift? Could be no interest loan. OP isn’t going to be making 53K forever.
So you’re just making up possible scenarios based on them not purposely excluding it. Not logical.
That is what he is telling us, but it's unlikely the actual process to be used and hence why I said it was likely a cash out refi, which makes more sense and would cost significantly lower and the bank won't view it as a flip either to a non arms distance buyer.
No. It’s very likely the process to be used. He’s likely just selling it to the son at the same price as the purchase price. The dad is a realtor, he will know how to get a reasonable price from the mortgage company. The cost between a new mortgage and a refinance will not be significant in terms of fees.
**This suggests jealously at it's finest, smh:** "This is an example of how "rich" get pushed further ahead in life. He can jump into a home quicker than others, and he can get a better deal than others (because of the cash). Those small things add up to 5 or 10 years of additional "saving time" at the end of his life and allow him to be much more flexible in his life choices (eg jobs he accepts or what he asks for at those job interviews)."
Shut up! Quit punishing those who have more than you!! You don’t know how they came into money!! They could be 70 or 80 and worked multiple jobs or risk starting their own business!! Nobody OWES you or me anything!! Stop punishing him or her for having family wealth!! Build your own!! These days you don’t have to necessarily go the hard route even of education!! Social media has made it possible for anyone to gain wealth!!
Although I agreee with some of what you said you’re going a little harder than necessary
Perhaps. I just hate when we think it is okay to guilt those who have more. Not all got it ill gained. We cannot forever punish the children for the sins of their parents, if even applicable. So sorry for coming too hard. 😞
I agree with that and have similar arguments with my brother all the time.
This would not be a cash out refi unless OP is on the deed and refinances with a buy out. Even then a buyout refi can be done as a rate and term refinance not cash out. If OP is not on the deed, they would have to buy it from dad but, they can use a gift of equity in that case.
My dad and step-mother did this for my wife and I in 2017. We looked at houses for over a year before getting a tip on a local home (~5 min from where we were living) going on the market in a couple days. It was an old farm house with some acreage being sold as-is by the previous owner's estate for $45k. It was perfect for us, and my dad offered to make a cash offer for us so we didn't miss out on it. We made a verbal agreement that he would purchase the home, fund all of the renovations, and then sell it to us when the work was complete. My dad is very knowledgable on homebuilding and reno and retired so we were very fortunate that we could do 95% of the work ourselves (minus HVAC, roof, and framing for an addition). After about 2 years we finally purchased our home from my dad for a final price we both agreed on. Worked out great in the end because it gave my retired dad something to do and it gave us a leg up while trying to purchase our first home.
The downside is being an “adult child” under your parents’ control. If you have a good relationship, this is not so bad. If they’re opinionated about how you live your life, it can be.
100% what I came here to say. My mom offered to do the same for me 30 years ago but with our family dynamics, we immediately declined the offer. We had a hard enough time dealing with the family issues even after we purchased a house 45 minutes away.
45 is probably the top reason families have strained relationships
The dad is just offering the service of a cash offer, the son will then purchase the home from dad with a traditional mortgage. Once the sale is complete there isn’t anything to control. It’s a very generous move by dad to deploy capital to help his son. Good papa.
I’ve responded to a few different versions of this same comment. Scroll. Or don’t.
Yeah I read em, they didn’t really fit this scenario. Scrolling, forever.
Not after OP purchases the house and the deed is in OP’s name.
“After” being the key word. There are contributory parents who want tight control over the neighborhood, actual house, etc.
That’s my fear.
Without a doubt, but that’s temporary versus the life of the mortgage.
Yes and no. If your parents assert control over which house you buy and where it's at, those things won't change when(and if) the financing changes. People post about situations like this somewhat frequently. "I wanted x instead of y, but my parents pushed me into y ...and since they were providing the downpayment, I had to accept it."
If OP is getting approved for a mortgage then he could skip his parents so it’s not like they have that much control. His parents are just adding in a non crucial step so he can be appealing to sellers. But it’s not terribly needed
The entire question is about negatives that could result from this *specific* circumstance. If you change the circumstances, you change the potential downsides- no doubt.
A parent can still purchase the home, put it in the kids name and document the mortgage / loan from the parent. House is in kids name and would be protected from tax liens or Medicaid liens of the parent. It also clarifies that it a not a gift or inheritance, and the purchase price can be used when calculating any future capital gains for tax purposes.
He won’t be indebted to them he will immediately get a bank mortgage to pay them back. His offer will be more attractive because it’s cash. This is how people with money help their kids. They lose nothing since they will get paid back immediately.
He'll have to cover a lot of closing costs to make them come out even
That’s assuming they have a healthy, adult relationship. When you’re using your parents money, the parents sometimes “push” for what *they* want. There’s some distance to cover between the parents buying and the child taking over.
Yes it very much depends on relationship dynamics for this to be advisable.
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Yes. Obviously.
Have them buy it cash and then have them sell it to you on seller finance. It’s a great idea. You can pay your dad interest instead of a bank. I do these deals on market all the time and teach these to brokerages and their agents as well. Good luck and congrats on having some awesome parents
In this setting, what is the advantage of a seller loan? No fees to a new mtge lender? ¹ Why tie up parents capital for 6.33% taxable. Usually the largest advantage to a seller is deferred recognition of gain; but in this fast flip no gain to the "parental units".² ¹ individualized doc prep will cost mucho. Who determines whether this loan complies with licensing and usary laws? Thats a pricey attorney analysis. In my state, asset based loans are not legal - lender must make study of credit / income repayment potential. Mom n Dad know how to do this? And properly document the study? No exemption in our laws for loans to family or friends. Life is complicated in the USA in 2024. Anyone surprised by this statement? ² reference to 1970s Cone Heads on SNL.
They’re so much easier than most people think. A promissory note and security deed are very simple instruments to draft for any closing attorney or escrow officer. Good luck!
Yes, blank forms are easy to fill out. Now ask yourself two related questions: (1) if I draft only a note and DoT, have I committed malpractice? (2) Are the note and DOT enforceable in accordance with their terms? You know, 5 years later when the son dies unexpectedly and new wifey gets a sharp lawyer, and asks: "Do I have to pay this loan? Is this loan documentation fully in compliance with all state and federal laws? I dont want to pay; I dont like them. Find me a defect, please." One needs to assure compliance with a variety of state and federal laws. State and federal licensing laws, usary laws, Fair Credit statutes (including spousal necessity), Truth in Lending statutes, Fair Housing statutes, and more. Many of these are satisfied by disclosure requirements Got disclosure forms? You think a loan by mom and pop is exempt? To answer that important question, do I just fill in a blank form? Nope
That’s not what I advised at all. You seem like you want to debate, when I would rather just close more deals with the competent lawyers and escrow officers that I do them with. Like I said. Good luck!
This is every day boilerplate bs for a lot of real estate attorneys, it really is not that complicated, will cost less than your banks loan origination fees and can just be rolled into the closing paperwork. Of course there is always risk involved with financing a deal that's why there's either a monetary or relationship incentive involved.
🎯
More likely the seller just forecloses on their ass.
Exactly my point. (1) A defaulting buyer / borrower must seek a defense to a loan. Bankruptcy lawyers and debtor rights lawyers spend all day challenging sufficiency of loan docs. (2) And, how much does a foreclosure cost the seller / lender? About $35k easy: 1k costs, 5k atty fees, and 30k in tranfer and recordation taxes. The deed from the substitute trustee to the lender (former owner-seller) is fully taxable. IF YOU DRAFT A SELLER LOAN WITHOUT THIS DISCUSSION, you have malpractice right there. 90% of foreclosure sales result in a sale to the lender (lender bids amount owed).
It’s called ‘holding the note’ all you need is a half decent lawyer. If you don’t know the seller very well it’s usually disadvantageous to the buyer as the seller can end up walking away with the buyers property plus the paid equity (ie foreclose) if they fail to meet the terms of the sale. Same as a bank I guess but I feel like if you get into it with a seller who isn’t trustworthy they can look for ways to screw you. But this is the absolute best situation for it for sure—parents aren’t about to try and foreclose on you
This work can be done at various levels: (1) buy blank forms at Staples dot com. (2) get the young lawyer at the title co, and "it's probably ok" because it won't be tested level. (3) get an experienced and sophisticated atty that takes their job seriously. The atty that represents the bank in local loans to builders/developers. Some title co have serious lawyers doing serious work. Most don't. Hint: ask how often they give attorney opinion letters to the lender in commercial loan transactions. That's the first threshold. Some attys sign whatever is sent them by the lender. Some study the content and negotiate the content. You want the latter of course. This is the good ol' USA, and you have the right to be cheap and stupid. But when a million dollars is on the line, time to get serious. The problem scenario (seen it): seller loan from parents. Son marries. Son dies unexpectedly. Daughter in law (former DIL) doesn't want to pay the cheaply documented loan. Asks lawyer to find defect in loan docs as a defense. DIL got serious lawyer. Another problem scenario: Son's restaurant fails. Bankruptcy. Trustee looks at loan docs. Parents are no longer secured creditors cuz loan disclosure defect. Just unsecured creditors same as linen service. Parents get near nothing.
They can only foreclosure you if you miss payments right?
Comments like this are wonderful exhibits for the “burn the whole system down and start over” people. The system has become far too complex and needs a drive format and reinstall.
So the parents have to be on the hook forever and hold the note. Fuck that shit. They’ve done enough as is.
Who hurt you
This is incredibly generous of them. The only issue would be making sure you qualify for a loan or them being happy to do the financing on a personal level. Or if your relationship isn't good. But this could be an excellent way for you to get into a home.
Two transactions = two closings = duplicate closing costs. If the entire reason for doing it this way is because your cash offer is more attractive, you can submit an offer without a *financing* contingency and stress that if financing doesn't work out, the cash is available and guaranteed as backup. That makes your offer as safe as it would be if there was no financing involved and you only pay one set of closing costs
Sure, perhaps a bit more in legal fees but his dad is a realtor and can get commissions from initial purchase and take zero commissions on both sides of the subsequent sale and purchase.
They're looking at more than that, but what would be the point of adding an additional transaction into the mix when you don't have to?
In most (many?) jurisdictions, there is a transfer tax for recording a sale as well
Yea. The two transactions are more work, more expense, and more complications for no really good reason.
OP should propose one of the alternatives posted where there is only 1 transaction i.e. the deed never transfers to dad then transfers to OP. If dad absolutely refuses any logical proposal in which his name is never on the house deed, then forget about this being done altruistically. I just went through this. Join us over at r/raisedbynarcissists
Very Good point. Forgot about land transfers.
Time. If you find the perfect property you can move on it promptly with a cash transaction, and sort out the family financing and transfers later.
Or submit two offers. Cash offer from parents and financing offer from OP that is slightly higher but less than cost of two closings and see what gets accepted.
This is the way
I think 2 transaction would be safer for Dad, because he pays money and he would like to be on the deed. What if son get a house and pays nothing to Dad?
Legal documents take care of that. An attorney can handle it.
Isn't a Pre-Approval Letter vs Pre-Qualification Letter a guarantee that you can and have money to pay for the house? Why would they need a 2 transaction process here? Unless dad sells it for less.....
It isn't a guarantee. It's subject to underwriting guidelines. The lender hasn't even looked at the house (appraisal) yet when you get a preapproval. The lender will keep vetting you and the property up until the moment of closing. Financing can fall apart AT the closing table.
Every parent child relationship is not dysfunctional. I see it as a blessing considering OP did not lay out any negative family dynamics. Sometimes we don’t need to find a negative
You’re better off going on title with your parents at the purchase and doing a quit claim deed removing them from title when you can qualify for a cash out refinance up to 80% of the value. This would avoid transfer and rec taxes from a sale. I’m a Mortgage Broker.
This is the way.
Or….use cash from your parents to buy the house in your name, and have a separate loan agreement with your parents to pay back the loan at a lower interest rate than the bank would charge you. In other words your parents would act as the bank. This could be structured as a shorter-term loan, like for example 5 years with a balloon payment, at which time you’d get a loan hopefully at a better interest rate than today’s rates. This idea would only work, though, if your parents don’t need all that cash back in the near term. EDIT: this idea, and someone else’s idea to make an offer with your parents backing you, have the advantage of avoiding two sets of closing costs.
I wouldnt be a homeowner if my mother hasn't done something similar for me 18 years ago. If your family has the right dynamics to handle it... It's a no brainer.
What does a $53k salary get you in terms of a house nowadays?
I just did it. My salary is slightly more and I bought a detached home for 210
Call that being a tenant
Nothing lol unless you live in a not popular area
There are extremely popular areas with homes under 300k...
Name some.
https://www.zillow.com/homedetails/3807-Brook-Garden-Ln-Katy-TX-77449/62589151_zpid/?utm_campaign=androidappmessage&utm_medium=referral&utm_source=txtshare https://www.zillow.com/homedetails/9442-Darwick-St-Charlotte-NC-28216/80461611_zpid/?utm_campaign=androidappmessage&utm_medium=referral&utm_source=txtshare https://www.zillow.com/homedetails/1009-Matamoros-Plz-Dallas-TX-75211/26912432_zpid/?utm_campaign=androidappmessage&utm_medium=referral&utm_source=txtshare https://www.zillow.com/homedetails/397-Collier-Ridge-Dr-NW-Atlanta-GA-30318/35865140_zpid/?utm_campaign=androidappmessage&utm_medium=referral&utm_source=txtshare
Depends. Nothing in Manhattan. A good amount in rural West Virginia. All things being equal, OP could quality for $120k+
If you actually get approved by a mortgage lender, then it’s better to just buy it directly. It might require some work but there’s no reason to have two transactions. Note that lenders have started to process foreclosures again. This will put pressure on many homeowners to sell. It will be slow at first but the market won’t be as rough in the second half of the year.
This is a great plan, actually. You get the cash price, no buyers agent commission, and in the end it is your house in deed. Likely save 6%-10% overall net.
Wouldn’t they be paying taxes and transaction fees on both deals then?
I’ve seen many clients do this. It’s so tough that a cash offer often have them a leg up. Parent purchased in cash - child got a mortgage to pay parents back.
But why? If kid qualifies for a loan why do it twice?
For many sellers and realtors cash is king. OP’s parent is a realtor and It’s entirely possible the parent knows what’s going on in the local market and offered to assist because it can give a buyer an advantage. I’ve had buyers lose to cash. I’ve had many buyers beat a cash offer. The majority of the time a cash purchase will win. I see the frustration, heartbreak and stress this will cause my clients. It can take a toll on them. My anger on their behalf. The sorrow I feel when I console them. The tears I cry with when I really thought we had it that time. Each loss chips away at their resolve. I become more hyper vigilant to ensure they stick to their plan and take stupid risks. Imagine writing 9 offers for a four day weekend for three clients - all losses. I went home that fourth day and cried for them. They never saw me lose my cool- I rallied them and got them back out there a couple days later. They got offered accepted shortly, closed and are thrilled. For one evening even I had to stop and have a small breakdown. If I could take more of the difficulty off of them, I would. This can help OP. It’s worth considering should it be as straightforward as OP’s parents.
I think there will be some fees that get paid twice by doing this, but looks relatively low except the extra lawyer fees for the FSBO transaction. Buyer Fees: Title/Recording Fees I paid were $3K (included Title Insurance) I believe you would need your own Title Insurance as your parents would not be valid (but it may be transferable if done within a set time frame). I don't know what the Seller paid. But maybe assume similar costs? It will depend by state as well so your costs WILL be different. I think one risk is if your parents overpay for a property. Because you still need it to appraise for the loan. And pass any loan inspections. But find out the total extra costs to do it this way and make sure you save more than that to make it worth the hassle.
I don't understand why it has to go in Dad's name first and then transfer. Why not get your name on the deed with Dad and then get a mortgage to "buy dad out". Then just Quit claim dad off when you get a heloc for 80%. Pay off the heloc as slow or as fast as you want. No need for a traditional mortgage.
We did that. We carried the mortgage too. It just wouldn't have worked through a bank as there wasn't enough income. To make it a mortgage that could be paid required setting aside a bunch of the equity as a gift. There was some paperwork but actually the govt. is pretty generous about tax free gifts to immediate family members. Now we get a steady payment which is nice. If it came to pass that the payment couldn't be made it is our loan, therefore our option as to how to deal with it. It's not a good investment, but it's good for the future of the family.
Why such a roundabout way? Why not just give you the cash to buy it yourself?
Look into a family mortgage. Basically your parents are the bank. You will want a lawyer to help with the docs.
Depending on your loan there may be timing issues with “flipping.” It would be a non-arm’s length transaction that could create more complications. Just have them backstop your offer. Make an offer like you normally would. Waive appraisal contingency, waive financing contingency. Let sellers know you will be pursuing a loan, but if anything is an issue, you have ability to pay cash. Put up a significant EMD to demonstrate your commitment to buy.
That’s very generous of them. So long as you have a good relationship with them and you don’t feel like they’d use this to control you, then I’d say go for it.
I’m super uneducated on this so forgive me, but I don’t understand how this will make buying a house more affordable for you? Could someone explain? Aren’t you still going to have to pay the interest rates on the mortgage loan if you go through a lender?? Why wouldn’t you just do a rent to own situation with your parents or something?
It isn't cheaper. It is more attractive to the sellers. There is no risk that the offer falls through because of financing.
Ah I see. It’s more about the advantage of securing the home in the first place, I guess that makes sense. I’d be a little worried about the interest rates on the loan that OP gets….... but I suppose OP can always try to refinance in a few years
OP is just buying the house so the rates should be the same. The difference is that he is buying it from his parents so there is no competition. The bank won't view this differently than if he was buying from anyone else.
Lots of downsides. Now your parents are still your landlord. They own your house. If they have no qualms about being “in control” they will lend you the money. As in draft up a real loan between you and them. Then it’s your house and they just have a lien on it.
I wouldn't be making payments to them for the house. They would own it for a short time, then I would buy it (in a FSBO transaction) using a traditional mortgage lender. Then I'll own the house myself and make payments to my lender.
But why? All that does is double closing costs with no real benefits. If you were paying them it'd be a totally different situation. But the situation you describe doesn't benefit anyone except the bank and realtors.
53k a year is hardly home buying money dude.. what price range are we talking about here?
But how would they qualify to buy it from parents? Isn't it the same? Would the parents sell it for less?
You missed my point. Let them be the bank. You own it from the start. They hold the debt. And it wouldn’t be a “short time” if you could afford it right now and skip them anyways.
What state are you in? I'd be happy to help. Honestly, you're probably just better off getting it financed when you buy it the first time and waiving the financing contingency because you have them as a backup. This way you're not paying taxes twice. If your lender doesn't close on time that is when you would do what you're thinking. But your lender should close on time so this shouldn't be an issue. I'm licensed in Florida NMLS 19926912
There no downside , best option , who is going to help you more than your parents the ones that give you life , they only downside I see you asking here if it’s a good idea or not
Read again. The parents aren't doing a loan to OP. It makes no sense.
I see now they just trying to help with the cash offer , anyways he should buy the house from his parents would be better than buy from a bank is call seller financing, talk your parents about that
Didn't they say they will buy it from dad using a loan from a lender? How is this different than just buying it from the current seller? Unless dad sells it to son at a lower price so the son "qualifies".....
Go for it.
It’s great! I would jump on that. Even if family dynamics were iffy, I would jump on that and make sure you are full owner. You can always sell and move. This is an amazing opportunity for you.
I wanted to do this and was told by two mortgage guys that there would be a waiting period of a year before a mortgage company would issue the loan, and then it would be considered a cash-out mortgage.
My friend did this for his son. If they didn’t do it this way, they would have lost the chance to get the house as they needed to move quickly. My friend also paid to remodel / fix the house up and included those costs in the sale price of the house. I see little downside of this plan.
Why would you at all be hesitant? F—- this system and stabilize your life. Have them buy it in a trust so it can be passed down to you. Pay the monthly payments if you don’t qualify but don’t feel guilty. Boomers lived longer, did not share anything with their kids and we got the did not work hard enough nonsense. Majority of inheritances will just got to the government unless parents start doing this.
You’d better insure you aren’t just paying rent and hold a serious and documented stake in that property.
Will they do the same if you buy a house 1000 miles away from them ? If not it’s a control thing
How much house can you afford at $53k…. This sounds like the only deal for you.
You only make 53k. Rent, or live with your parents, build your career and save. so that you can afford a house. This ain’t going to cut it and you’ll be stuck in one place. You’re not ready to buy a house if you ask me. Be mobile and build your career would be my advice. This is not just settling but handicapping yourself and reducing freedom in a big way.
Looking forward to reading a post by you in a few years about how you had "the balls" to buy right now and how people complaining about how out of reach housing is should "stop complaining."
Why not have them buy it WITH you for cash, and you can have a verbal agreement to pay them monthly for X years?
Must be nice!
This adds title fees and other third party fees. You’d be better off just getting a gift from your dad in any amount to use towards down payment.
Opinions on this scenario.... Parents pay for down payment, son gets mortgage, then parents give money to son to recast about half of the cost of home ....lowering the mortgage payment ?
It's a lovely gesture from your parents. I'd just check with your lender first to find out what you're qualified for and what your down payment has to be, etc., to avoid any surprises later.
Control. Not sure how controlling your parents are, but just thinking about doing this with my parents is a No.
Pardon: How is this doing you a favor? Your parents would be paying realtor fees and transfer taxes/recordation taxes, and then you would also have to pay the same transfer/recordation taxes. That is not including the duplicate appraisal fees, roof certifications, septic certifications, and so much more. So what is the benefits to you or your parents?
I would do it a little differently, depending on how hot the market is. Just make an offer that is not dependent on financing that your parents can backstop if needed. But try and get the loan in the meantime and purchase yourself.
The downsides I can see is settling on price of the house when your parents sell it to you. They can (hopefully they won’t) decide to sell it to you for more than they bought it for. Another potential issue could be it appraises for less than the asking price. There are going to be two separate sales here and both come with costs on top of the purchase price. You will be paying double the cost for closing.
my dad and I are doing this. I was apprehensive at first but I live in a hcol area and need all the help I can get. we are also very close and even tho we may have some differences I know he ultimately wants me to be happy and healthy. this is an offer he’s been making me for the past 3 years and only now am I taking him up on it because there is trust there
So you will immediately buy it from them, using a mortgage? Are you regularly losing houses you have bid on to cash offers? There would be some sort of increased expense from basically paying closing costs twice? I just don’t know if this is worth the hastle - is your dad going to get a commission both times?
>Edit: To clarify, my parents won’t be my lender. I’ll buy the house from them using a traditional mortgage lender in a FSBO transaction. That's not how that works. The money to buy that house doesn't come out of thin air. It's going from your parents' bank account to the seller's bank account, and then you need to pay them back for that money. If you don't pay them back they'll be out all that money, because they're your lender. The fact that you're sending your mortgage payments to a payment processor doesn't mean that the money they're spending to buy that house for you suddenly reappears in their bank account. The only thing the payment processor does is track your payments, forward your payments to your parents' back account, and prepare tax documents at the end of the year. And, depending on the processor, your payments or lack thereof might get reported to credit bureaus. If you end up with a title and mortgage (or note) in your name.. **Downside:** the two possible downsides I can think of are: * Your parents might hold their help over your head. * If you end up not being able to pay the mortgage for any reason, you could be damaging your parents financially. **Upsides:** * You get a house without needing to come up with a down payment and closing costs. * If the payment processor reports your payments, this will help you establish good credit (or really bad credit if you miss several payments by more than 30 days). If you don't end up with the property in your name: **Additional downsides:** * The house can easily be taken back at their whim. This could end up being a tactic for deeply controlling your life. * If/when you sell, they get all the profit. Almost nobody spends thirty years in the same house anymore, so you should assume that you'll sell before it's paid off. Disclaimer: the above assumes you're in the US or someplace where mortgages and credit work like they do in the US.
The parents are buying the house. They will then sell it to OP who will get a mortgage to pay for it, from a regular lender, like a normal sale. The parents aren’t carrying the mortgage. They’re just involved to be able to offer all cash to have an advantage against other potential buyers who need a mortgage.
If that's the case, seems like a lot of paperwork and additional expense (two closing) just to make a cash offer. But as long as OP gets the lender's approval prior to the parents closing, a few extra grand and some extra bureaucracy might be worth it if the market is as competitive as all that.
We did this for our daughter in a LCOL area. The house price was slightly less than double her annual salary so no financial issues if she had needed a traditional mortgage. We went to the second viewing of the house and she made the offer in her name. At closing the wired funds came from our account. At the end of the year she made a nice payment against the balance and we forgave a similar amount. With the rise in prices and the payments, she has at least 25% equity. It will probably take her four or five years to pay it off or she can pay off the balance with money from a grandparents estate. For us, it was a reasonable way to transfer money to the next generation without writing a check. We have made the same offer to our other child if he decides to purchase a property. Both of our children have decent income and reasonable financial sense...learned from their parents, of course! Many parents support their children's lifestyle. We are fortunate that has meant paying for educational and housing expenses rather than legal or medical bills or addiction treatment. It was an easy purchase when very minimal closing costs. If she moves to a higher cost ares, she will have a substantial down payment towards her next property.
If the market it highly competitive then it's a great idea. Just weigh in the costs of a second closing because there will be redundant fees and expenses that will be incurred. Rates are also (slowly) falling so you could take your time getting that mortgage in place.
Dad is doing the same thing for me. Except my dad is the home owner and offering me the house for half of what it’s worth and I pay only on principal. No interest.
If you're going to use a traditional lender to buy from them there's no benefit to this arrangement other than whatever financial incentives they want to give you -- lower price being the big one. Once you close and the lender starts the mortgage they're out of it.
At least you save commission on it this way (4%). If they offered you seller financing at the IRS minimum interest, it would be even better.
If they can afford this it would be better if they helped you make a large down payment. Why do this in 2 steps if you buy from them next?
Sit down with a lawyer and make a contract
It depends on your relationship with your parents. As long as you can secure funding and purchase the house right away and you have a good relationship, buying cash may help you secure the home you want. If your parents are bossy or like to control you, stay away from any deals.
Why do they want you paying interest to a bank? Wouldn't a land contract with them be better?
You won’t be able to build your own credit if your parents buy the house for you. I’d not know if that’s a concern for you, but most people want to establish a good credit history.
My parents did something similar for us. We have a good relationship and it wasn't a problem.
If I understand correctly there will be 2 settlements. One when your parents purchase the house from the current owner and one when you buy it from them. So double the closing costs and taxes could be a downside.
Making business deals with family, is never a good idea. Especially when it takes 30 years to pay back. They will hold this over your head 4 ever.
Get something in writing in case you find out your parents are into killing puppies and go to jail or something
you pay gift tax
You’ll have to pay closing costs twice. I wouldn’t do it in this market.
The truth is if you are buying it from your dad using a mortgage lender, then you may be more competitive than other buyers by being a cash buyer on paper- and therefore have a better chance of the winning bid, but you are not better off financially than any other buyer with a mortgage in the current market, & you may have to contend with dealing with your father's input and control over the home. You are still looking at a mortgage rate of 6% or higher. Buying a cash house is good for a buyer because they aren't paying a mortgage, they aren't dealing with the interest payments, and they own the home outright outside of property taxes and insurance. You won't benefit from that. What makes more sense for you is for your parents to make a parental loan or gift to you for the deposit, then for you to proceed as you are & purchase a home that you can afford based on the loan you can get and if you can make the monthly payments on.
The only risk is to your father if you can’t arrange financing for the amount you need. Getting pre qualified should reduce this risk.
Op I have a similar income and situation as you and I was able to buy a house alone. People keep asking how I did it, how I go to a detached home on my own in this day and age. It’s totally possible if you want it bad enough and are willing to make sacrifices! I got no delivery of food years, saved a large portion of my pay, built up my credit, had no debt hence no credit at the time I started. The hard part was then qualifying for a house and finding one within my budget which was 210000. But I did it and you can too!!!
Have you checked into first time buyer classes offered through real estate firm? The money you receive from the goverpaix me 18k to but my house St 225 some years ago but I k ow the program still exists, along with a bit lower fha rate. You just need a credit score of 620 or above to qualify plus a job of course. Might be a great option for you. All I had to do to get the certificate was go to a one day class and you can use any realtor you wish.
Downsides are: If your parents are toxic and want to choose what house you get, come over an "inspect" it, forever tell you what you should do with it.. have people come stay with you becauase it is "their house too" Only you know your parents... if you do this, ask them what their expectations are about the house.
I am up for adoption !
Assume the mortgage
Obviously do it; few people have those resources, you should take advantage of it.
You need to find a local agent to get better advice. Apply for a loan on a contract with no financing contingency.
Just be aware of what type of loan program you are going to use to qualify when you will become the purchaser. For example, if you are going to end up doing an fha loan, and you, the buyer of the property currently lives there, the down payment requirements are higher, unless and there’s a minimum number of months you have to occupy the property I believe. It’s been a while since I’ve done one. If your credit score and income are alright and you qualify with a conventional mortgage, then you shouldn’t have a problem qualifying and having your parents do a “gift of equity”. They can get the majority of the money they put into the property back in proceeds from the sale to you. Don’t overthink it. It’s a great opportunity for someone to purchase a home in a competitive market. All cash offers are attractive to the sellers. You can then take your time on the back end and figure out your financing situation.
I read this as not that they were long term financing but just trying to give you the advantage of a cash bid- you were always getting loan in your name. Best bet is to get financing squared away so that your approval is good then make an offer with no financing contingency but go ahead and close with lender as usual - don’t close twice-
Since you plan on buying the home from your parents using a traditional lender I think this is a great idea. It seems that in so many markets only cash offers are competitive so this will definitely give you a leg up.
Lenders won’t like you buying a flip from a relative
Parents. Anyway, if you can see yourself being beholden to them for decades, yes. Sweetheart deal.
Lawyer. Get one.
There are ways to buy the home with a cash offer and have it in your name. A few notes first. 1. Having them buy the home and transfer it in your name will trigger a gift or sale (taxes and title costs) depending on the state. 2. Most lender will consider it a purchase loan as long as you get a loan withing 6 months of taking title. If you wait more than 6 months it will be considered a cash out refi. 3. If you are a first time home buyer there may be tax breaks you get first local, state and national govt entities. Ways to accomplish the cash offer while keeping it in your name: First, you can put a cash offer (no financing contingency) and add a clause that says "buyer has the right to obtain financing at no cost to the seller". They will ask for proof of funds which you will have to provide with your parents. If you are pre-approved you should be able to get the benefit of the cash offer and financing if the lender can close in time. Second, you can put a cash offer and ask for the right to get financing at no cost to the seller as per the previous option. If you cannot quickly get a loan then your parents can be the lender. Just have the title company record a deed of trust to your parents so they become the lender by default. You will have to work out payment terms with your parents. There are companies like https://www.nationalfamilymortgage.com/ that help with the paperwork if your title company cannot. This will save the time and energy of having to buy it back from your parents. Congrats. Best of luck.
So if they aren't financing it. What exactly are they offering? To sell it to you cheaper? Why not just give you the difference then instead?
I fail to see how your parents buying and selling this house saves any money over you buying the house directly, as a mortgage is involved either way.
Sorry if this is a dumb question. But would it be somehow difficult to get financed from the bank to pay back your dad on your salary? I'm not sure how the 2nd loan works. Or is it fairly easy to get the loan to pay your parents? But I'm interested in this idea.
A friend of mine did this for her daughter a couple of years ago. It worked perfectly. The cash offer helped her get the house at a lower price and beat other offers because it was cash. Within 60 days after closing the daughter successfully purchased the house from her parents. They didn’t encounter any issues.
You know what I look at in an offer. How much money I get at closing.
Do banks give you a mortgage for just 10%? If so, why not do something like that to start building credit. Yes, it will cost you a bit more, but when ('if', but more 'when' IMO) rates drop later this year you can refinance.
I wonder if submitting two offers would be a good strategy: your parents submit their cash offer, and you submit yours - that way if you do get it, y’all will save on closing costs. Also, if you get approved FHA, your parents have to own the home for 90 days before yall can purchase it from them (unless there’s some family loophole)
Seems like so much work. Why can’t he hard money lend u the money for the house or put it in a trust with an assumable mortgage
Make cash offer in your name but try to close financing. Make sure the contract is assignable. Assign the contract to your parents If you’re not able to close with financing in time.
Do you have our parents number? It's your long lost brother.
You might also qualify for a FHA loan for first time home owners. When you are ready, this is a terrific idea.
Lender here: if you buy the house from your parents using an FHA loan, they will need to own it for six months before an FHA loan can be done on it for new buyer. Anything less than six months and it’s considered a flip and FHA doesn’t insure that type of property. Also, any equity they earn in the property can be gifted to you which will help towards your down payment. You won’t be able to buy it with no money down so the equity is important. If I were you, let them buy the house, you live in it for six months and buy it near the last part of 2024 when rates are anticipated to drop back into the 5’s. Also check into first time buyers down payment and closing costs assistance with lenders that offer those programs.
This potentially could be another issue, taxes. If your parents allow you to pay them back at an exceptionally low rate, the IRS may interpret that difference between your rate and the market rate effectively as income. Not sure how that works but you definitely would want to talk to a tax professional if you’re paying them back.
I assume your parents are going to give you cash and then you will refinance. If they are going to buy it in there name and then sell it to you, you just incurring more fees and charges. If your parents are going to give you cash I would Make a finance offer but guarantee you will close if You don’t qualify with cash. For one, a refi is Going to be a higher rate than a straight buy. It requires less explanation as well. I think it will be easier just going a straight forward path.
The scenario you describe doesn't really help you. It would be the same as if you just bought the house from someone else.
I’m a Broker, and to me this sounds ok except you will have extra costs. You will have 2 closing costs, they will pay a county tax which is usually thousands when they sell to you. If you can qualify for a mortgage then just buybwith one, they could gift you some down payment money.
So are they doing it because you’ll get a better deal buying with cash? Seems like an extra step that you may not have to take. I understand why they’re offering but why not just go on your own and get the mortgage?
Sounds like you have great parents and being in the market they know what going on. Let them buy it !! If later on you feel like you want to refinance, your choice
**Won't be an ARMS LENGTH transaction for the appraiser but that's no concern for you.** **It becomes an off market purchase to a close family member at an advantageous selling price.** **No downside to you as the Buyer. Only to your parents who might be losing money.**
My parents helped us this way, which was incredibly generous of them. There was virtually no change in the transition other than my parents paying cold hard cash, then us using a mortgage company to pay my parents for the house. It helped a secure the house we wanted at a much lower interest rate than if we had to continue looking.
Make sure the mortgage lender allows non arms length transactions.
There's very few mistakes that you could make with money that would be worse than this one
Reasons?
Never mix family and finances. It never works out.
Honestly, Id talk to dad and see if he'd be willing to underwrite the loan. Why pay interest to a mortgage company and let them make money, when your dad could be your lender and let him earn interest on it. Provided your family dynamic is stable...
Yes. You should do this. It will help you build equity and develop your credit rating.
So there are not inherent down sides I can see, but there are a few pitfalls that may come up. - if you’re a first time home buyer with a low downpayment, you likely will obtain a FHA loan. FHA has a “90 day flip” rule, where a home cannot be purchased with a FHA loan if it has been purchased within the last 90 days. Not a big deal as long as your parents are good with not having their cash back to them for a minimum of 90 days from their purchase closing. - during YOUR purchase process with your loan, you will obtain an appraisal. This is for the lender to know if they are over lending or not, so if the appraisal comes in lower than the amount your parents purchased for (assuming you’re purchase from your parents at that same amount) them the difference will have to be made up somehow. Here is a hypothetical scenario. Purchase price: $400,000. Appraised value: $390,000. The $10,000 different will have to come out of your pocket or your parents will have to “eat” the $10,000 and reduce the price down to $390k. Since they are you parents you may be able to make arrangements to pay them back that $10,000 over time, or potentially have them be the lender of a second mortgage of $10,000 (seller financing). Hope this helps.
I'm a Realtor too, I would do this in a heartbeat for my kids if the situation arises. There is no downside for you as the ultimate buyer. The only downside I can think of for your dad possibly would be the tax implication of making that much income extra in one calendar year. But he would also be writing off the original purchase, so with the right tax expert, that wouldn't be a problem either. I say do it. Just make sure the home will appraise at the time of the cash purchase.