Buying a house is one of the most largest and life changing investments one can make. If you aren’t careful, the experience can be the most dreadful or the most pleasing. There are many ways you can alleviate the stresses of the process…one is buying from someone you know. Although this may hold true it is not a simple process. It is recommended that you consider the pros and cons of buying from a friend or family before you do. If you are curious as to how to buy a house from a friend or family member, look no further! This article is a step by step guide to show you the ins and outs of home buying from a friend or family.
Types of transaction – non arms length
To begin with, it is important to note the two different transactions typically dealing with real estate. The first are arms length transactions, in which the two parties do not have a relationship with one another. The other is non arms length, in which the parties share a relationship whether personal or professional.
Typically with non-arm’s-length transactions, you’ll experience added restrictions, and may have to pay extra taxes. This is because the IRS is ensuring that a fair market value and interest amount is paid for the home – sellers tend to provide unreasonable deals to other friends or family as a favor. Sometimes, if you bought the home at a cheaper price and decide to sell it down the line, it is not far fetched that you may run into to capital gains taxes as well.
Another thing to consider is that the seller may end up with a drop in their finances, leaving them to ask you for money on the purchase or mortgage. This is especially the case if they gave you the loan instead of the mortgage lender. Although you may love your family or friends, money can inspire people to act differently.
Going back to the value placed on a house, many sellers will give an unrealistic one. They are trying to ensure they get the most out of their sale, while you as the buyer want a price that’s unbiased and fair. In order to figure out that price, it is recommended that you seek an independent property evaluation company BEFORE agreeing on a sale price.
Utilize the inspection
Many people will think just because they’ve spent time in a house that they know everything wrong with it. There could be many things operational in home but not up to present day code, making it harder for you to sell the house down the line. Just because you turned on the heat doesn’t mean you know if it is installed correctly. The best way to get an objective perspective of the home, it is best you get a home inspection done. This will allow a professional to notice things the seller or buyer isn’t aware of. Even if the house is sold to you originally at a discount, repairs can add up to thousands down the line and create hard feelings. If you want to prevent any of these problems it is best you hire an inspector to look at things closer.