Posted on: 21st Oct, 2008 01:07 pm
Hello-
My husband and I are planning to buy a house that my parents own and have rented out for years. The house is paid off and my parents are asking for $158,000 from us (it's worth more, but they are willing to give us a deal). We sold our house this summer and have been living in the house owned by my parents.
We have approximately $20,000 to put down, but have had some changes in our lives since we sold our previous house; I became a stay-at-home Mom after I was laid off in the Spring, and I don't plan on returning to work at this time, as it does not make financial sense for us right now. That being said, our monthly income is now $1500 less and a mortgage payment on this house will be much more than the mortgage on our previous, much smaller house.
My parents are willing to let us pay what we can for now, but I want to put something in writing so that they have some sort of contract and we are listed as the homeowners if possible. I was thinking of a "rent to own" sort of contract with an agreed upon monthly payment for approximately the next 5 years (until I start work again), with the stipulation of revising the monthly payment at that time or obtaining a traditional mortgage in the future. They have told us that we do not need to give them a down payment, but my husband is worried that we will be required to pay taxes on the $20,000 that we received from the sale of our previous house if we don't turn it back into a mortgage (the government will consider that money "income"?).
I have no idea what to do and need some advice on how best to proceed in this unique situation. Any suggestions would be greatly appreciated.
Thanks.
My husband and I are planning to buy a house that my parents own and have rented out for years. The house is paid off and my parents are asking for $158,000 from us (it's worth more, but they are willing to give us a deal). We sold our house this summer and have been living in the house owned by my parents.
We have approximately $20,000 to put down, but have had some changes in our lives since we sold our previous house; I became a stay-at-home Mom after I was laid off in the Spring, and I don't plan on returning to work at this time, as it does not make financial sense for us right now. That being said, our monthly income is now $1500 less and a mortgage payment on this house will be much more than the mortgage on our previous, much smaller house.
My parents are willing to let us pay what we can for now, but I want to put something in writing so that they have some sort of contract and we are listed as the homeowners if possible. I was thinking of a "rent to own" sort of contract with an agreed upon monthly payment for approximately the next 5 years (until I start work again), with the stipulation of revising the monthly payment at that time or obtaining a traditional mortgage in the future. They have told us that we do not need to give them a down payment, but my husband is worried that we will be required to pay taxes on the $20,000 that we received from the sale of our previous house if we don't turn it back into a mortgage (the government will consider that money "income"?).
I have no idea what to do and need some advice on how best to proceed in this unique situation. Any suggestions would be greatly appreciated.
Thanks.
Hi kynsicat!
Welcome to forums!
Yes, $20,000 which you received from the sale of the previous house will be considered as an income and you will have to pay taxes on it.
You can go in for owner financing which is also an excellent way to buy a house. You can involve a representative from a title company to form a note on behalf of both where the details of the contract will be written.
Feel free to ask if you have further queries.
Sussane
Welcome to forums!
Yes, $20,000 which you received from the sale of the previous house will be considered as an income and you will have to pay taxes on it.
You can go in for owner financing which is also an excellent way to buy a house. You can involve a representative from a title company to form a note on behalf of both where the details of the contract will be written.
Feel free to ask if you have further queries.
Sussane
Hi Kynsicat,
I'm not sure on the tax issue...you need to consult with an good CPA, but I think there is some loophole regarding capital gains, and as long as it was your primary, I think you have a good chance of avoiding tax. I think I also remember about getting a "one-time freebie", however, I doubt you would want to waste your freebie on a $20k gain.
Another point regarding tax, between selling a home and buying a home, you would certainly be able to find legitimate write-off's through the two transactions. Again, a good CPA is a wonderful thing.
You could also continue to lease it from your parents for the next 1-2 years and then you could "refi" it into your name.
You didn't give any info on your income and credit scores or desired pymt, so it is hard to say what kind of loans are options for you, but a pymt on $158k would be about $1270 PITI, and if you put the 20k down then your pymt would be more like $1070. These are estimates given based on using formulas for your average large city in America.
If these pymts are too high for you, then you are fortunate to be in a position where your parents are willing to help you out. Count your blessings.
Good luck,
Kim
I'm not sure on the tax issue...you need to consult with an good CPA, but I think there is some loophole regarding capital gains, and as long as it was your primary, I think you have a good chance of avoiding tax. I think I also remember about getting a "one-time freebie", however, I doubt you would want to waste your freebie on a $20k gain.
Another point regarding tax, between selling a home and buying a home, you would certainly be able to find legitimate write-off's through the two transactions. Again, a good CPA is a wonderful thing.
You could also continue to lease it from your parents for the next 1-2 years and then you could "refi" it into your name.
You didn't give any info on your income and credit scores or desired pymt, so it is hard to say what kind of loans are options for you, but a pymt on $158k would be about $1270 PITI, and if you put the 20k down then your pymt would be more like $1070. These are estimates given based on using formulas for your average large city in America.
If these pymts are too high for you, then you are fortunate to be in a position where your parents are willing to help you out. Count your blessings.
Good luck,
Kim
