Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
There is a property I'm very interested in (Illinois - Cook county)
Given the hot market in that price range, I'm considering asking a (willing) family member to make an offer and purchase the property cash. Once it closes, I would go take out a mortgage to buy the property from my amazing family member.
If everyone behaves and treats each other fairly, it's a good deal for all.
If it goes bad, it can destroy your whole amazing family.
It depends on everything going well for the life of the loan. People get divorced, become ill, lose their jobs, have their life and plans change... what happens then?
If you want your amazing family to survive this, do NOT for a moment think because it's family, you can get away with something (missing payments, being late or only paying partially, not taking care of the property, etc. Do not for a moment think your family should forgive you - because it's family - for things a bank would not. Because it's family, you should care about them FIRST.
Keep in mind, private contracts often pay at least a point above prime, sometimes two. That's fair. If you want this to work long term, make it an income producing investment for them, not charity.
Which brings us to the hard questions.... why do you need this help? Are they doing you a favor, or do they like the idea of the positive cash flow? Why are you unable to get your own mortgage? Will those factors make this loan risky for your family to accept? Is this one of many investments by this family member, or everything they have? Are you likely to stay there forever, or move in a few years? The rest of the story matters.
If everyone behaves and treats each other fairly, it's a good deal for all.
If it goes bad, it can destroy your whole amazing family.
It depends on everything going well for the life of the loan. People get divorced, become ill, lose their jobs, have their life and plans change... what happens then?
If you want your amazing family to survive this, do NOT for a moment think because it's family, you can get away with something (missing payments, being late or only paying partially, not taking care of the property, etc. Do not for a moment think your family should forgive you - because it's family - for things a bank would not. Because it's family, you should care about them FIRST.
Keep in mind, private contracts often pay at least a point above prime, sometimes two. That's fair. If you want this to work long term, make it an income producing investment for them, not charity.
Which brings us to the hard questions.... why do you need this help? Are they doing you a favor, or do they like the idea of the positive cash flow? Why are you unable to get your own mortgage? Will those factors make this loan risky for your family to accept? Is this one of many investments by this family member, or everything they have? Are you likely to stay there forever, or move in a few years? The rest of the story matters.
Thanks for the detailed reply.
Financial hardship is not in the picture in this, so that's not a worry. I'm very conservative with my money, and am also responsible for financial well-being of the said family member, so their success is very much in my own interest so I wouldn't do anything irresponsible. As a matter of fact, that's why I'm researching this.
I more than qualify for the loan, but I do need a place to live asap and a cash deal offers a few advantages as you know - quick close, better negotiating position, etc. According to my realtor, we can try to negotiate a few thousand off the purchase price if paying cash.
My biggest concern is taking a loan later to buy from a family member and how the lenders view this type of transactions. You mentioned that private contracts pay a point above prime-what does that mean exactly? Is that a negative?
As far as the property itself, it's in a great location and with 20% down offers positive cash flow.
Once you have closed, you will have bought the house (for cash) and the family member is no longer in the picture. If you subsequently choose to get a mortgage you will simply be using the house for collateral. You could also get a regular bank loan, often called a note, directly from a local bank. This might have a shorter term than 30 yrs, though, but is often renewable.
I think I need clarification of what you are proposing, because other responders have interpreted the situation entirely different than how I did.
What I thought you want to do is have a relative with a lot of cash buy a home for cash (presumably for a quick closing) then you buy it from the relative, using money from a “normal” mortgage.
If I’m right, what happens if you can’t get a mortgage? What if, God forbid, relative gets run over by a cement truck between their purchase and you getting the mortgage?
Ditto. There are many questions...if you are looking to do a cash out refinance to pay the relative back, you will be restricted as to how much and when you can take money out. Now, if the relative is going to hold the paper and act as your lender, that's another set of rules (IRS) to worry about.
Get specific....how much for the property. Who is on title. Will you refinance or will the relative hold paper? Rate? Term? RE Taxes? How much money are you putting in.... so many questions.
Rereading everything, I think I get it now. OP appears to want to have a relative buy a for-sale house with cash, then he will buy it from the relative after he gets a regular mortgage. He is doing this so he can compete with other cash buyers who seem to be getting all the good houses that are for sale.
The answer to his question is that buying the house from the relative will not have any effect on his ability to get a mortgage. The problem is a different one, and that is that the relative will have to pay a ton of taxes when the poster buys the house from the relative within a year. A better option would be for the poster to have gotten pre-approved/pre-qualified for a mortgage for x amount of dollars before he goes house shopping. Then he will be competitive with a cash buyer, especially if he impresses the seller in some way.
I think I need clarification of what you are proposing, because other responders have interpreted the situation entirely different than how I did.
Yeah - reading it again now... not sure if it's been edited, or whether I maybe didn't read it right either.
I guess my question becomes whether it is really necessary to risk the favors of a family member to save "a few thousand dollars off the purchase price". Just be careful. Beyond this point there be dragons.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
