Posted on: 03rd Feb, 2010 09:19 am
We are looking to purchase our first home, a 2 bedroom condo in Southern California, and I had a question about the best way to finance the deal. We are approved for well over our purchase amount and have about 10% to put down. However, my father-in-law wants to help us out by using all cash to purchase a place and use as leverage drive down the price. We would purchase all cash, then refi a few months later and pay him back.
My questions is has anybody ever done something similar to this and knows the best way to do it? We were thinking to have him loan us the full amount for purchase, we buy in our name, then refi down the road and pay back his loan. Any problems with this, other than the double escrow fees?
The other option was to have him purchase the home, then sell it to us at his cost to avoid paying taxes on the transaction. The only problem here is that we wouldn’t qualify for the 1st time home buyer credit since the transaction isn’t at arm’s length.
Does anybody have any thoughts on the best way to complete this deal? Is it worth the hassle, or should we just do a conventional loan and forget about paying cash?
Thanks!
My questions is has anybody ever done something similar to this and knows the best way to do it? We were thinking to have him loan us the full amount for purchase, we buy in our name, then refi down the road and pay back his loan. Any problems with this, other than the double escrow fees?
The other option was to have him purchase the home, then sell it to us at his cost to avoid paying taxes on the transaction. The only problem here is that we wouldn’t qualify for the 1st time home buyer credit since the transaction isn’t at arm’s length.
Does anybody have any thoughts on the best way to complete this deal? Is it worth the hassle, or should we just do a conventional loan and forget about paying cash?
Thanks!
Hi rdclairm,
If you have a good credit score, decent income and debt to income ratio, it is better to go for a conventional loan directly. Conventional loans would require a down payment of 20%. You can ask your father-in-law to give you that down payment amount as a gift which will make it easier for you to get the loan.
Thanks
If you have a good credit score, decent income and debt to income ratio, it is better to go for a conventional loan directly. Conventional loans would require a down payment of 20%. You can ask your father-in-law to give you that down payment amount as a gift which will make it easier for you to get the loan.
Thanks
well , there are 2 sides to this story .
your father in law is right , about getting a better deal with all cash .
especially for reo's or shorts ale , or pre-foreclosure property . the later 2 are usually not that easy . better deal also means less property tax .
with a conventional seller , you may just jump ahead of other similar offers .
usually banks like to see you own the property for 6-12 month , before even considering a refi . and yes , the downside will be the added escrow and cl.costs etc added . and it wont be tax deductable as a lump in the purchase year .
for a faster refi , "technical refi " you have to refi , within 90 days of purchase , you will get the tax deduction . however , you have to show your bank statements , proving that the cash was actually yours , and not a loan from , lets say your inlaw ;)
so in short : if you find a reo that you like , its prolly worth a shot to put in an all cash offer , that you think would be a steal . (if your inlaw is fine waiting up to a year to get the money back )
unfortunately we dont know what the interest rates will be at that time .
in the worst case scenario , your property sailed below the "steal" value you bought it for , and have to hear it every thanksgiving :)
your father in law is right , about getting a better deal with all cash .
especially for reo's or shorts ale , or pre-foreclosure property . the later 2 are usually not that easy . better deal also means less property tax .
with a conventional seller , you may just jump ahead of other similar offers .
usually banks like to see you own the property for 6-12 month , before even considering a refi . and yes , the downside will be the added escrow and cl.costs etc added . and it wont be tax deductable as a lump in the purchase year .
for a faster refi , "technical refi " you have to refi , within 90 days of purchase , you will get the tax deduction . however , you have to show your bank statements , proving that the cash was actually yours , and not a loan from , lets say your inlaw ;)
so in short : if you find a reo that you like , its prolly worth a shot to put in an all cash offer , that you think would be a steal . (if your inlaw is fine waiting up to a year to get the money back )
unfortunately we dont know what the interest rates will be at that time .
in the worst case scenario , your property sailed below the "steal" value you bought it for , and have to hear it every thanksgiving :)
btw , what jhoggs stated is absolutely true . your inlaw could save you guys trouble , buy gifting , or lending you the other 10 % down .
i would assume that in todays market , with 10 % down you would have to pay mortgage insurance , which you really want to try to avoid .
i would assume that in todays market , with 10 % down you would have to pay mortgage insurance , which you really want to try to avoid .
have your in-laws put a private money lien at time of recording for the purchase price (essentially, they are your lender and it looks like an all cash offer) due in 30 days from the recording date. then have a lender do a rate and term refinance (fha can refinance about 95% of the price conventional about 90%). you get a better price and your in-laws get their money back quickly while securing the house if something happens to you until you can refinance.
if you have questions please feel free to call me direct 951-488-3182. i am a direct mortgage lender in southern california with wholesale capital corporation in moreno valley.
if you have questions please feel free to call me direct 951-488-3182. i am a direct mortgage lender in southern california with wholesale capital corporation in moreno valley.
While there are other mortgages in the world, Fannie Mae and Freddie Mac are the most common conventional loans.
They do not allow cash out in less than 6 months. So, after 6 months you could do a cash out refinace with those loans.
You will not be able to do cash out up to 90% of the value because that would require private mortgage insurance and they do not provide private mortgage insurance for cash out over 80% of the value.
So, you may not get as much cash back as you planned on.
You could do an FHA mortgage. May not be as desirable as a conventional mortgage. You can get cash out up to 85%, but, you have to wait 12 months to do it.
Local portfolio lenders I would not know about time frame to wait, but, would not do over 80% of the value.
Here's a game plan: Sign a purchase contract as a cash buyer. That obligates you to pay cash.
However, knowing you must pay cash if you do not get a mortgage, apply for a mortgage and get it. As long as you close on time, the seller never cares if you pay cash or have a mortgage. They may never know you applied for a mortgage. If you pay cash you need to know how long it will take you to do a cash out refinance and how much you can get.
They do not allow cash out in less than 6 months. So, after 6 months you could do a cash out refinace with those loans.
You will not be able to do cash out up to 90% of the value because that would require private mortgage insurance and they do not provide private mortgage insurance for cash out over 80% of the value.
So, you may not get as much cash back as you planned on.
You could do an FHA mortgage. May not be as desirable as a conventional mortgage. You can get cash out up to 85%, but, you have to wait 12 months to do it.
Local portfolio lenders I would not know about time frame to wait, but, would not do over 80% of the value.
Here's a game plan: Sign a purchase contract as a cash buyer. That obligates you to pay cash.
However, knowing you must pay cash if you do not get a mortgage, apply for a mortgage and get it. As long as you close on time, the seller never cares if you pay cash or have a mortgage. They may never know you applied for a mortgage. If you pay cash you need to know how long it will take you to do a cash out refinance and how much you can get.
Great game plan to get a lower price by saying you will pay cash on offer letter, but any half decent listing agent will ask for proof of funds, as they did on all the offers I made. I suppose you can photoshop in those extra zeros...
That's right, it is better to save up your cash. Better ask for a legal advice.
