Posted on: 13th Oct, 2007 04:24 am
I will be buying my parents' home as they now want to sell and travel. They will be selling it at $75K and the house is valued at $245K. I would like to get a mortgage of $125-145K so that I can do the repair work. What are the downsides of doing this? And is there any penalty for this type of sale? and if you need more details..my fico score is 600 and i'm a first time buyer.
The net amount of the sale price can be given as a gift as well........SO......if the parents sell the house for 245k and gift the OP The difference between 245k and 150k the OP would have a loan for 150k......They could then legally give the OP after close the difference between 150k and the amoount they want to get from the house......IT could not be done at closing.......it would have to be done after closing......but it is a legal transaction.......and you don't have to mess with the FHA loan........it would be no different that giving the money up front.....an adtional option would be to have the parents open a heloc at no cost do the repairs and then sell the house.......so there are options other than FHA.....
The net amount of the sale price can be given as a gift as well........SO......if the parents sell the house for 245k and gift the OP The difference between 245k and 150k the OP would have a loan for 150k......They could then legally give the OP after close the difference between 150k and the amount they want to get from the house......IT could not be done at closing.......it would have to be done after closing......but it is a legal transaction.......and you don't have to mess with the FHA loan........it would be no different that giving the money up front.....an additional option would be to have the parents open a heloc at no cost do the repairs and then sell the house.......so there are options other than FHA.....
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Cedric Kalvesmaki
and yet you will need to pay around 20-30% on taxes on the amount you're not allowed to receive.
48k they're allowed to receive as a gift.....anything over that will be subject to taxes.
Receiving money 'outside of closing' w/out a lender knowing about it is illegal. I would highly discourage someone from doing this EVEN if it's their parents offering it.
FHA 203K will have a much lower rate than a HELOC.....and they can avoid the taxes on the amount above the gifted amount....but still decent points to consider.
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Cedric Kalvesmaki
and yet you will need to pay around 20-30% on taxes on the amount you're not allowed to receive.
48k they're allowed to receive as a gift.....anything over that will be subject to taxes.
Receiving money 'outside of closing' w/out a lender knowing about it is illegal. I would highly discourage someone from doing this EVEN if it's their parents offering it.
FHA 203K will have a much lower rate than a HELOC.....and they can avoid the taxes on the amount above the gifted amount....but still decent points to consider.
Banker.......I'm not going to argue with you.......You are talking about taxes.......neither one of is is a CPA........We don't kow if they have lived in the house for 2 of the past 5 years......so THE WHOLE AMOUNT OF THE GIFT MAY BE TAXABLE ALONG WITH CAP GAINS TAX........so stop the knit picking and recognize that there are other options........neither one of us knows the the EXACT scenario........my comment reflects other options that are available........as for your fraud comment.......Let me address that......How the money is given is the most important component......they can do it on the front side and actually depending on circumstances see some benefit........or they can choose to give money back to the OP a year after the fact.........and there is NOTHING illegal about giving a cash gift.......
Please read carefully as I stated 'Giving cash from the sale of a home to a buyer without letting the lender know IS ILLEGAL. Please call your state commissioner of banks and ask them.
Please refrain from giving unethical advice on this forum that can lead to fraud. Everyone in the mortgage industry will tell you this is illegal. Telling a borrower to negotiate an outside transaction that isn't disclosed on the HUD violates Federal Laws. Carpet allowances, repair costs, cash gifts, etc...that IS NOT disclosed to the lender is illegal.
Please refrain from giving unethical advice on this forum that can lead to fraud. Everyone in the mortgage industry will tell you this is illegal. Telling a borrower to negotiate an outside transaction that isn't disclosed on the HUD violates Federal Laws. Carpet allowances, repair costs, cash gifts, etc...that IS NOT disclosed to the lender is illegal.
Receiving cash gifts has nothing to do with the law that Bill Clinton passed concerning capital gains on a home that has been lived in for 2yrs out of the 5yrs. We're speaking of the 'borrower' paying these taxes as THEY are the one RECEIVING the gift.
A person is allowed to receive 12,000 from an individual w/out paying taxes on it. Since he has mother/father he can receive 24,000. If he is married he can receive up to 48,000. Anything over this amount is subject to taxes. Since they're willing to sell it for around 75k.....and gift him the 20%. That will make sales price around 94,000.
That is a gift of 19,000.
If they sell it to him for the 'full value' and gift it to him aftewards that will be 245k - 75k = 170k
170k - 48k = 122k in excess gifted amount.
Excess gifts are subject to taxes of at least 20%.
24,400 in taxes.
You're right....I'm not a CPA, but I'm sure one phone call to a CPA will tell you that 24,400 is a lower than the actual number.
I know this from dealing with these transactions, and receiving a 20% equity from parents which I had to pay taxes on.
A person is allowed to receive 12,000 from an individual w/out paying taxes on it. Since he has mother/father he can receive 24,000. If he is married he can receive up to 48,000. Anything over this amount is subject to taxes. Since they're willing to sell it for around 75k.....and gift him the 20%. That will make sales price around 94,000.
That is a gift of 19,000.
If they sell it to him for the 'full value' and gift it to him aftewards that will be 245k - 75k = 170k
170k - 48k = 122k in excess gifted amount.
Excess gifts are subject to taxes of at least 20%.
24,400 in taxes.
You're right....I'm not a CPA, but I'm sure one phone call to a CPA will tell you that 24,400 is a lower than the actual number.
I know this from dealing with these transactions, and receiving a 20% equity from parents which I had to pay taxes on.
My point still stands........There are other options available to the OP......primarily taking a no cost heloc out doing the repair or upgrades and the buying the house......Th OP avoids the up front MIP and 4 years of mortgage insurance on an FHA loan......or the cost of the refi to get out of mortgage insurance......
Hi all,
As much as I can say, at the time of closing, the seller is often asked to sign a statement that there is no side deal between the buyer and the seller and no gift or payment is made by the buyer till the buyer is to receive the funds from the lender.
After the buyer receives the funds, he will be able to receive the gift of equity as cash from his parents as far as this situation is concerned. And, if the buyer receives the gift once the closing is over, the transaction will not be regarded as a fraud. That's the reason Ckalvesmaki says that the parents could legally give the OP the gift of equity after closing is over.
Good luck :)
As much as I can say, at the time of closing, the seller is often asked to sign a statement that there is no side deal between the buyer and the seller and no gift or payment is made by the buyer till the buyer is to receive the funds from the lender.
After the buyer receives the funds, he will be able to receive the gift of equity as cash from his parents as far as this situation is concerned. And, if the buyer receives the gift once the closing is over, the transaction will not be regarded as a fraud. That's the reason Ckalvesmaki says that the parents could legally give the OP the gift of equity after closing is over.
Good luck :)
hi lee,
with a gift of equity there can be capital gains tax if your parents have not lived in the home 2 out of the last 5 years. if they have, i would suggest going with a gift of equity and then you can borrow what you need to fix up the home without having to go fha. if your parents have not lived in the home, then i would suggest them adding you to title and then you can just do a refinance for what you need to fix up the home as well. this way there is no capital gains tax.
with a gift of equity there can be capital gains tax if your parents have not lived in the home 2 out of the last 5 years. if they have, i would suggest going with a gift of equity and then you can borrow what you need to fix up the home without having to go fha. if your parents have not lived in the home, then i would suggest them adding you to title and then you can just do a refinance for what you need to fix up the home as well. this way there is no capital gains tax.
what ever happened to "erring on the side of caution"????
thank you banker, for your sanity in this situation. i concur that advising a borrower to take advantage of opportunities that are not disclosed to his lender is dangerous, to say the least; and bordering on outright fraudulence.
is nobody careful any more with the things they will suggest?
thank you banker, for your sanity in this situation. i concur that advising a borrower to take advantage of opportunities that are not disclosed to his lender is dangerous, to say the least; and bordering on outright fraudulence.
is nobody careful any more with the things they will suggest?
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