Last Updated on February 9, 2021 by Maggie Looker
Many heroes enter their professions because they are continuing a family legacy. It’s not uncommon to see whole families of teachers, men and women following in their parents’ footsteps to become police officers or firefighters, or military service members carrying on a proud family tradition. But home ownership can be a legacy too, and many people want to pass down the homes they cherish to their children or other relatives. Other times heroes want to purchase a home from a family member to help them out or return to live in their childhood home. But buying a house from a family member comes with unique emotional and legal considerations, so it isn’t as easy as just handing over the keys. Here are some tips on how to buy a house from a family member while making the process as quick and painless as possible.
Do I Need a Real Estate Agent?
This is often the number one question from people who are buying a house from a family member. The short answer is yes. While you may have already agreed on a purchase price and don’t need the marketing talents or other skills real estate agents are typically used for, they can still serve a very important purpose. Mainly, a real estate agent will help facilitate the sale so that everything goes smoothly, taking care of the paperwork and making sure you follow all legal guidelines.
If you haven’t agreed on a purchase price, a real estate agent can help you navigate the home appraisal process and conduct a comparative market analysis. They can also act as a go-between and a mediator on any negotiations so all parties can keep their emotions in check and ensure that everyone is happy with the arrangement when everything is said and done.
Buying a House Below Market Value
One of the advantages of buying a house from a family member is that price is typically less of a motivating factor than it is in traditional home sales. Sometimes an aging loved one just wants to see their home stay in the family and is willing to sell for pennies on the dollar. Buying a house from family below market value is certainly doable, but there are some special considerations you’ll need to take into account.
For starters, it’s important to familiarize yourself with “gifts of equity.” This is where a family member sells a home below market value and gifts some of the equity they generated in the home for the buyer to use as part of their down payment. This obviously has some benefits for the buyer, and most lenders consider a “gift of equity” the same as a gift in cash. However, the IRS has rules about how much you can gift before that gift becomes taxable. Currently, the IRS permits a tax-free equity gift of $15,000 a year for individuals and $30,000 for married couples. So just know that if you are buying a house from family below market value, it’s likely the IRS will scrutinize the transaction.
Tips for Buying from Family
Here are a few other things to keep in mind when buying a house from a family member:
- Even if you’ve agreed on a price and are willing to waive contingencies to speed up the process and cut costs, you should still get a home inspection, home appraisal, survey and title insurance. These are important closing costs that can protect both parties and may be required by your lender to complete the deal.
- If the selling family member’s mortgage is assumable, you may be able to transfer the existing mortgage under the same terms, taking on the existing debt after paying a flat fee. Most VA, FHA and other government-backed loans are assumable, but you will still need to meet lender requirements and qualify for the mortgage.
- Real estate transactions between parents and their children are often examined more closely by lenders to ensure everything is being done legally and no party is being manipulated. If you are using a mortgage to buy a house from a parent, prepare for increased scrutiny from your lender.
- If the selling family member is sick or elderly, a deed vesting the seller should be filed the same day that any funds are transferred to ensure the transaction goes through should something happen.
Heroes work incredibly hard, dedicating themselves day in and day out to improve the lives of people in their communities. So, when that hard work and selflessness is rewarded with the ability to purchase a home, it’s worth celebrating and worth passing on. Whether you’re buying a house from family below market value or giving them a fair price, by following these tips and understanding the special considerations, you can complete the transaction painlessly and get back to spending time as a family.
Looking to buy and/or sell your house? Register with Homes for Heroes and our real estate specialists will work to save you an average of $2,400 on your next real estate transaction.
