Buying a parent's house
April 28, 2012 9:35 PM   Subscribe

I want to buy my mom's house. What are the logistics of this?

I am already a homeowner, so I'm familiar with the basics. But what special things do I need to know if I'm going to buy a house from my parent? It's probably only worth about $100k (low: $80k / high: $130k on Zillow) in this market. There's a $70k mortgage left on it. So my mom is willing to take $100k for it.

I wouldn't pay cash for it, so I'd need to get a new loan. Also, while I wouldn't necessarily be getting it for a below-market price, is there a gift tax issue that would make getting a professional appraisal or actually listing it the wise thing to do?
posted by KimikoPi to Work & Money (12 answers total) 1 user marked this as a favorite
If you are getting a loan, you will need an appraisal anyway. That is probably a good place to start. You might also want to find a real estate attorney to write up the sales contract for you. They can also let your mom know about anything that she is legally required to do on sale of the property (e.g. in some communities, if you sell a home, it has to meet certain code standards that are grandfathered in until the sale.)
posted by metahawk at 10:08 PM on April 28, 2012

Where is the house located (relevant to your question about gift taxes)?
posted by vignettist at 10:56 PM on April 28, 2012

Response by poster: House is in California.
posted by KimikoPi at 11:54 PM on April 28, 2012

The easiest way to do this is to hire a realtor to manage the logistics of the transaction. This will likely cost you a few grand--which can be folded into the mortgage--but unless you're confident you can handle all the paperwork yourself, i.e., manage the transfer of title to both the municipality and the bank's satisfaction, you're better off hiring a professional.

The fact that it's your mother's house is of no immediate consequence if this is going to be for all intents and purposes an arms-length sale. You're paying what amounts to market price for it, so gift taxes won't really come into play, or at least they shouldn't. Your realtor will have a better idea about that.

You might be able to work out a deal on your realtor's commission too. Much of what they do is marketing, and in this transaction they wouldn't be doing any of that, just managing the logistics of the transfer as such. No listing fees, no showings, no real time invested on their part. As such, some sort of discount from their normal rate seems appropriate.
posted by valkyryn at 4:07 AM on April 29, 2012

Hire a realtor? No. Just use a lawyer for the transaction. For example, we bought a house from a friend as a rental property. All it required was her lawyer and our lawyer. Easy.

In our case, we paid off our current house and then took out another mortgage on it immediately and used that money to buy the second house outright. Why? Keeping the mortgage on our primary residence is more tax advantageous.
posted by plinth at 4:20 AM on April 29, 2012

Use a lawyer, no need for a realtor. We sold our old house to a friend after inheriting my parents house which we now live in. We had a lawyer, our friend had a lawyer, no realtor needed and it all went smoothly, everyone happy. This was in NJ if that is relevant.
posted by mermayd at 4:44 AM on April 29, 2012

FWIW it is a simple RE transaction, but if your parents are of an age where they may need a nursing home or other high medical expenses there is a 5 year lookback period. The Gubment wants to make sure you are not hiding assets. If that is the case talk to a financial planner or medicaid planner.
posted by Gungho at 5:37 AM on April 29, 2012

If you want to do the sale as simple as possible, you do it just like a regular home purchase: hire a realtor or lawyer, get appraisals and inspections, talk to your bank, find a closing service, etc. A realtor may be more expensive than a lawyer, because you're not using all of the realtor's services (marketing, showing, etc.), but do your shopping when looking for a lawyer. I even shopped around for a real estate lawyer and found the one I liked best, but during my recent home purchase he seemed confused by some "weird" parts in the purchase agreement -- which were a standard Realtor association revision from 2010, which means he hadn't really helped in a closing for a couple years :/
posted by AzraelBrown at 5:44 AM on April 29, 2012

Do not hire a realtor.
posted by furtive at 8:23 AM on April 29, 2012

You shouldn't need a realtor, just a real estate lawyer to handle closing issues.

Do you have siblings? Do they know you are planning to do this? If so, on a longer-term/emotional level you may want to make sure that everyone is on board with this decision and know that you are paying fair market price, so that there aren't any inheritance issues later on (not legal ones, just emotional baggage about how 'you got the house' and what that might mean when the estate is divided according to your mother's wishes).
posted by Mchelly at 10:39 AM on April 29, 2012

You should probably start researching financing options before you get too far down the road. Even though you are not buying at a below-market price, this will still be considered a non-arms length transaction, and that may limit your mortgage options. I'm not an expert on investment property financing but my impression is that most lenders won't do it if the transaction is not arms length, and if they do I'm sure the LTV willl be capped pretty low (75 or 80%).

If mom doesn't need a big chunk of cash right now, another alternative might be seller financing or contract for deed where you buy it from her over time. A good real estate attorney can advise you about those options.
posted by tinymojo at 1:51 PM on April 29, 2012

Sorry meant to note that the above only applies if you are not planning to occupy the house; if you are going to use it as your primary residence you should be able to get standard mortgage terms easily enough.
posted by tinymojo at 1:53 PM on April 29, 2012

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