Buying a home from someone you know, like a friend or family member, seems like it should be a great deal, right? After all, you already have a relationship with the seller, and you’ll probably get a better price and complete the process more quickly. While buying from friends or family can work out well for everyone, there are some things you should know and prepare for before you jump in.
Make agreements in writing
While it can be tempting to cut some corners when buying from someone you know, you should make sure to get all agreements in writing. This helps to ensure that everyone knows exactly what is being agreed to. It also leaves a paper trail should any problems arise down the line.
Be honest about the relationship
When you are securing financing for the home, you need to be honest with the lender about your relationship to the seller. There may be added restrictions when buying from friends or family, and not disclosing the relationship could cause problems. In fact, it could constitute mortgage fraud. That could result in the delay of closing, denying of the loan or the lender calling the loan after closing, making the full balance due. You could even get a call from the district attorney if the lender loses money. The bottom line is – be transparent.
Don’t skip the inspection
If you’re buying from someone you know, chances are you’ve been in the house a number of times. You may even be a tenant purchasing a home from your landlord. Even if you think you know the house inside and out, you should not skip the home inspection. Hire a licensed professional who will let you know about any possible issues so that they can be addressed in the deal.
Have the home appraised
Likewise, you should also make sure to have the home appraised so that you know the estimated value. If you’re financing, the lender will likely require an appraisal.
Agree on a fair price
While it’s normal to want a good deal on your home purchase, the seller should not give you any excessive discounts. While a small break isn’t a big deal, the IRS will be watching to make sure the home is priced at a fair market value. If not, and you sell shortly thereafter, you could end up paying capital gains taxes.
Hire a professional
It’s wise to get some legal advice during this process, so you may want to consider hiring a real estate attorney. They can help you complete all the necessary paperwork so you aren’t accused of mortgage fraud at a later date. You should also hire a title company to transfer the home from seller to buyer. And while you may feel it’s not necessary to hire a real estate agent, it could be helpful to hire one as a consultant. Many agents will work as a consultant for a flat rate to advise you on the process and make sure you’re doing everything necessary to properly finalize the deal.