It seems like the perfect scenario: You’re looking for a home to purchase, and you just happen to have a relative interested in selling at a great price. Or, perhaps the home has been in the family for generations; and the latest owner is ready to pass it on to the next of kin who’s in line to own it. While you might be dreaming of an easy way to transfer ownership and score lower out-of-pocket expenses, be aware of a few personal and transactional pitfalls.
Take necessary steps
It’s easy to cast aside transaction formalities when dealing with friends or family, but the following steps can help protect both parties ─ and your relationship ─ in the event that something goes awry. Here are a few ways to start:
- Settle on an amount.
Make sure both parties are comfortable with the sales price by scheduling a home inspection and appraisal that will provide both sides with some pricing peace of mind. Also, consider reaching out to real estate professionals who can offer sales pricing based on market demand.
- Think about getting a home warranty.
If areas of the home are in need of repair after closing, consider a home warranty if the buyer won’t be picking up those costs.
- Set up the proper financing.
If you plan on landing a loan for any portion of the home purchase, find a lender and get preapproved up front.
- Seek out the proper professional help.
In addition to finding a lender, consider enlisting the help of a real estate attorney to ensure that the transaction is completed correctly and executed in the best interest of both parties.
- Get it in writing.
Avoid resentment down the road by getting everything on paper – even when it doesn’t seem necessary.
Explore your options
A home can be transferred from one family member to another in several ways. If the home is owned outright, a quitclaim or warranty deed can be filed once both parties agree on a price. If the purchaser is unable to obtain traditional financing, family members could offer owner financing in which they receive a monthly payment instead of through a lender.
Make sure both parties are comfortable with what each option requires.
Understand the restrictions
Just because your family member is ready to give you a steep discount on the home, it doesn’t mean there’s smooth sailing ahead. If a home is priced too far below market value, the Internal Revenue Service could see the transaction as a gift, resulting in a gift tax. If the home is an investment property with an FHA loan, a maximum mortgage amount could be applied. Do the proper research and make sure your savings aren’t eaten up by additional tax burdens.
Let’s face it: Family relationships can be easily complicated by financial transactions. In order to ensure the best outcome, call a loanDepot licensed lending officer today at (888) 983-3240 to get the assistance you need.
Published July 27, 2017
Start the first year of your home loan with a little breathing room
Buying after bankruptcy may be possible sooner than you think
How an HOA can affect your home loan
Is equity fueling a home-renovation boom?