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ALSO- Would we be eligible for the 8k tax credit even though we are buying the house from my dad?
Here's the link for the Tax Credit: Federal Housing Tax Credit: Tax Credits at a Glance (http://www.federalhousingtaxcredit.com/glance.php - broken link)
I am not a tax professional so I would strongly advise you and dad to at least look up all the details on your own and try and find a qualfied tax pro / CPA to advise you but from what I have done in the past my recollection is that you should be able to get any tax credits as long as the sale is done in a business like way at the same price /rates that would apply to arm's length sale. It is only when transfers between related parties are done in such a way to ONLY create a transaction that is NOT business like that you have problems.
The most obvious benefit to dad is that he will get monthly check from you for the principle and interest that he is 'lending' you on the asset he has inherited. Depending on the rest of his income and the size of the total estate the current tax vs ongoing liability could be factor, but again that is something that is different depending on the specifics that a tax pro would need to plan for.
You can deduct the interest the same as if you paid a lender, and you just enter dad's SS number instead of the lender's ID on your tax forms. As long as you and dad agree to a fair rate and the rest of your taxes are straight forward this is very simple.
You would save boat loads of money in PMI and lender fees, you can probably stop by the county office yourself to file the papers to have the title and lien properly recorded and any transfer fees can be worked out between you and dad / the estate.
Depending on how much dad owes on his mortgage and how long he has to pay it off the stream of income he gets from financing your purchase of grandma's house can be a way for all of you to benefit from this -- down the road dad probably will have to make estate plans and if things work out maybe someday you can sell his house to your kids. Generational wealth transfer is how Queen Elizabeth got rich and can work for regular people too!
Does dad NEED the cash? If the house was owned by grandma free and clear and dad can live without a big pile of cash all at once I would STRONGLY encourage you & him to structure this as owner financing, giving him a 30 year stream of principle and interest that you can avoid any PMI, fees, appraisals or other BS.
Yes, but then that puts money between father and son/daughter. Its one thing when someone can't afford the mortgage (not saying the OP couldn't) and the bank comes knocking, but its another when the the son/daughter has a rough month due to something else (car needed $1500 in repairs) and can't make the mortgage. Dad would be more willing to let it slide. And then he'd be in a position to "lord over" the son/daughter.
'Why are you spending money on that toy for your kid? You owe me $1500!'
I will say... it is a good idea in many ways. Why give the interest to the bank when you can give the interest (low I'd imagine) to family? Dad might even gift the interest back later on. But, money puts stress on relationships. You'd have to be very careful.
Does dad NEED the cash? If the house was owned by grandma free and clear and dad can live without a big pile of cash all at once I would STRONGLY encourage you & him to structure this as owner financing, giving him a 30 year stream of principle and interest that you can avoid any PMI, fees, appraisals or other BS. As long as the title is recorded properly and the record of payments is done in a businesslike manner this could a HUGE plus for both of you. Should something change in the future you could refi when your equity is greater and then give him the great big pile of cash...
I have helped a handful of buyers & sellers do this and if everyone is capable of treating the business aspects of this appropriately it works quite nicely.
Great idea. We tried to buy our sons home and had some difficulty because the lender did not consider it an "Arms length" transaction.
New rules make it harder to get loans.
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