Buying a home from a relative has the potential to be both a blessing and a curse. Buying a home from a relative means you already know all about the house and you probably think of it fondly. Buying from a relative also means there may be some emotional ties that cause problems within a business relationship. Weigh your pros and cons carefully before buying a home from a relative.
Get a home inspection no matter how close the relative is or how many times you have been in the house. Sometimes when you have been in a house many times over many years you begin to overlook small problems. Small problems can grow into monumental ones right before your eyes when you’ve grown accustomed to what you’re looking at. If you’re buying a home from a relative, you trust this person. There may be issues with the home from a relation that even she doesn’t know. Having a professional come in and inspect the home gives a level playing field for both parties. Run a title search on the property to make sure there is no old liens or restrictions on the property.
Create a legally binding contract. Decide on your terms beforehand. This is where you may have trouble buying from a relative. Emotions get in the way and often change minds and opinions in the middle of an agreement. The contract should include the price, the property lines, outbuildings, fixtures and furniture that remain and any repairs that are left to be made. The contract should also detail a timeline during which the sale will transpire and what will take place in instances of breach of contract. Both you and your relative must sign and initial the contract.
Coordinate your financing. When you are buying from a relative there are often great financial perks. Low interest is one of those perks. If your lender is your relative they will likely accept a lower rate of interest. If you still need a down payment even though you’re buying from a relative apply for a loan at a bank, credit union or financial institution. Private lenders are another option. Have the specific amount you need for a down payment and the buyers contract ready when you apply for a loan.
Consult a tax attorney. Buying a house is a tricky affair and can be very confusing. The tax laws in particular can be daunting. A lawyer that specializes in home loans, home buying and family affairs will be able to assure you get the appropriate tax breaks and know all your responsibilities. Insurance is another final issue to clear up when buying a home from a relative. Once the escrow is closed and the deal is done you must purchase homeowners insurance as well as put all utilities in your own name.
Buying from a relative in any situation can be intimidating but buying a home from a relative even more so. Keep a firm grasp on the facts of the situation and rule out emotionally charged decisions and the experience will be rewarding to both parties.
Consult a tax attorny when purchasing a home from anyone to assure you get the appropriate tax breaks.
Sources and Citations