Buying A House From Family

by Torrey from Pennsylvania

Regarding Buying A House From Family: Hi Kate, Will it be difficult for my niece to get a mortgage if I sell her the family homestead for a price significantly below market value?

Kate Answers: Buying A House From Family

Hi Torrey, Non arm's length transaction, isn't that's the odd term used to describe a real estate transaction that consists of one family member selling a house to another! Like yours, a lower than market sales price is often involved.

I assume you want to use the difference between the appraised value (the higher amount) and the sales price (the lower amount) as a down payment and/or equity.

Some mortgage programs allow for this and others don't. So be certain to explain your purpose upfront for a reliable response from a lender.

If the answer is a "no" at first, try another lender. I see a lot of variance among mortgage institutions when it comes to buying a house by means of a non arm's length transaction.

I'd also recommend consulting an accountant to see if you should be looking out for tax consequences.

Good luck helping your niece. I hope you'll come back to my website again in the future.

So remember to bookmark to your favorites and visit often for up to date tips for buying a house, mortgage news and refinancing advice. You can also invite friends to comment on this page or create a page of their own like you did.

Best Wishes,

Ask Kate how to get the best mortgage rates
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P.S. Go to my Best Mortgage Rate Blog, an entertaining source of mortgage information.

Learn More About Your Dream Team

How to Buy a House Part 1 Meet your real estate agent and save yourself heartache and headache.

How to Buy a House Part 2 Meet your mortgage lender - Expect more than quoting the lowest rate or taking an application.

Check out List of Mortgage Companies, a local lender directory.

How to Get a Mortgage Part 3 Meet your home inspector and avoid buying a money pit.

How to Get a Mortgage Part 4 Meet your real estate appraiser - Does an appraisal assures you of a good deal?

How to Get a Mortgage Part 5 Meet your title insurance companies for coverage resulting in peace of mind.

How to Get a Mortgage Part 6 Meet your homeowners insurance agent because there is more to it than the cheapest quote.

How to Get a Mortgage Part 7 Meet your escrow and closing disclosure form, the guardian of your real estate transactions.

Title, Abstract Services and Escrow Agents, a mortgage service provider directory.

How to Buy a House Questions and Answers II.

How to Buy a House Questions and Answers I.

Comments for Buying A House From Family.

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Non-Arm's Length Mortgage Crisis
by: Desperate in Kentucky

Hi Kate, My mother passed away a year ago. I quit my job to take care of her when she got sick and have not yet been able to find another one. As a result, we are now a year behind on her mortgage, as well as our own.

Her house is worth about $80,000 and has about $25,000 left owed on it. My mother-en-law agreed to buy the house for $65,000. She was advised that me being married to her son would not be a problem because the house was going to go in her husband's name.

Now the lenders are saying it is an issue and have changed her original full financing approval to 85% with her coming up with $12,000.

They said this can be gifted to her but only by a relative of her husband. We don't know what else to do and are now really close to losing both homes. We have 4 children so this is not an option! Any advice?

Hi Desperate, Kate here... This is exactly what I mean about non-arm's length mortgage transactions - They make some lenders and banks run away in fear.

Try to get to the person with authority at the mortgage company to see if you can talk some sense into them. Assuming they won't change their loan decision and that coming up with the $12,000 is not possible, it might be worth your time to switch lenders.

But I do wonder if this company is using the non-arm's length transaction guideline as an excuse and not telling you the actual reason for loan denial.

You need to know so that you won't waste time changing lenders and risk losing the homes. So have a talk with your mortgage originator and ask for frank details.

Best wishes, Kate

P.S. Kentucky is included in Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets. You may be entitled to some of the funds. To find out, go to Kentucky Housing Corporation for information. Best of luck, Kate

Assisting Daughter
by: John

My daughter and boy friend bought a house in 2005, with the down payment supplied by me. The boyfriend is gone and wants off the debt and the deed. My wife and I would like to help my daughter stay on the property. We want to buy the house and let her pay rent. My daughter's credit score is low and a refinance in the three of our names will not work. Do you have any suggestions?

Hi John, Kate here: As a mother of 4 daughters, I understand your concern.

Before going through the expense of buying her home, try calling the loan servicing department. Inquire into an assumption. If you and your wife could replace the boyfriend on the deed and the mortgage AND keep your daughter on, that would certainly be good news for everyone.

Please let me know how the transaction works out and feel free to comment again or ask a question.

Wishing you the best, Kate

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