Would you buy a house from family?

[SeekerMage]

Dh's uncle (Miss Moose's biological grandpa as well) knows that we are looking into buying a house and cant afford much. So he wants to sell us his house. His offer is at the top of our price range and really more then we can afford, and he would be taking a huge cut in price compared to what he could get on the market. (possibly even 100,000 worth of price cut!) He also mentioned possibly paying him directly rather then with a mortage company. Not sure on all the details but he is speaking to a lawyer about it. Neither one of us is to keen on this arrangement so we would have to work something else out as far as that goes. However, do we really want to get into this kind of situation?

The house is much bigger then we would be able to afford otherwise and has a HUGE lot of land which we love and a lot of cute features. (enclosed wrap around porch, built in hutch in kitchen etc) It does need some work though. As is its fine and more then liveable, but for our tastes etc a lot needs to be done. (cracked plaster that was just painted over, new carpet (dog peed everywhere), paved driveway(its gravel now) etc) Should we even consider it? We would use the equity we get out of our current home to do all these repairs and could make it a great house....but at the same time its a lot of repairs ontop of moving with two small children.

He really seems to be pushing for us to take it and we would hate to hurt him, but I dunno. If only he would just give us money towards a house we really want instead (well one can dream right? hehehehe)

Any advice...experiences etc?

[Marisa6826]

No. I would run. It sounds like you would not only be "house poor" (overextending yourselves for a house that would still need work), but unless you have yourself a GOOD real estate attorney to draw up an iron clad contract, I wouldn't get involved financially with a family member. It makes for a biiiiig Pandora's box.

You need to consider what you are able to do financially. What if your DH was to lose his job? Would it add animosity to the family if you couldn't make your monthly payment to the uncle? What if you or the kids had a health emergency? Can you afford a bigger than comfortable mortage and medical bills?

It's kind that your DH's uncle is willing to take a loss on the house, but that sounds a little fishy to me. Especially, if, as you said the house needs work. We just bought our first house seven months ago. Take it from my experience. It is ALWAYS more expensive than you think it will be - and there are always 'emergencies' - we've already had to replace the furnace, gutters, and had pipes freeze on us.

I'd find something that is more in your budget.

JMO

-m

[miki]

I would not do it. Especially if it means having to pay your mortgage directly to the uncle. I'm of the opinion that when you have money going between family, the party giving the money should be prepared to look at it as a gift if something goes wrong and it can't be re-paid to avoid bad feelings down the line. But that does not sound like the case here.

[amazz]

If you buy from family you automatically send up a red flag to the IRS even when the sale is done at market value. A red flag will make both of you more likely to be audited. If you decide to purchase the house I would strongly recommend you do an "arms length" transaction, which means purchasing it from him as if he were just another seller. I think you just run into problems when you try to cut corners on transactions such as this, besides the problems that come with purchasing from family. (FWIW, I graduated with a degree in Financial Planning in December and it was said over and over again to be very careful when purchasing a house from family.)

There is also the possibility that he would have to consider the $100,000 as a gift to you and your husband and would end up having to pay gift taxes. And if he didn't, and was audited (which can happen up to 5 years later), he would be charged back taxes and penalties. His lawyer should bring all of this up to him and if he doesn't, I would get a new lawyer!!

All of this is my opinion, but I think that my education would be wasted if I didn't share it with you.

HTH!

Angela
EDD 10/15/04

[Roleysmom]

Kathyrn --

I wouldn't do it. My sister bought the house I grew up in from my mom and it was really hard for my mom to let go. My sister owned it for over 10 years and anytime something had to be replaced or repaired (the roof, for example), my mom became really definsive and took it personally, as if they were saying you didn't care for the house so now the roof has to be replaced. She also had a hard time watching my sister redecorate it. I think it made her uncomfortable to visit. I'm not saying that this would happen in all families, certainly it seems a little on the extreme side, but watching this as a teen made me think that I would be very careful about buying a house from a family member. My mom had this reaction and they had a conventional transaction, using real estate agents and a mortgage company. While my mom may have sold it to them for the low end of the asking range, she certainly didn't take a large financial loss, as it seems like your uncle may. I think that could definitely cause some tension in the long run. I could imagine a situation where you are making some of the needed repairs and family members comment that if you had enough money to pave the driveway (for example), why didn't you have the money to give Uncle a higher price for his home.

I also agree wholeheartedly with Marissa that the house could be a big financial strain. It's nice not to be so financially tapped that every decision you make (how much to work, what vacations to take, etc.) is weighed against paying the monster mortgage.

I bet there's something more in your price range that, while maybe not meeting all of your desires, will be a beautiful home for you and DH and the girls.

Paula -- mom to Roley Julia, January 2002