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Columns: Real Estate Adviser
Steve McLinden   Expert: Steve McLinden
Real Estate Adviser
Buying from a relative still justifies caution
Real Estate Adviser

When a home sale stays in the family

Dear Steve,
I am buying a home from a family member and not using an agent. What are some of the important things to consider in this sort of situation?
-- Patty

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Dear Patty,
A few additional details would have been helpful, but I'll try to give you the general rundown.

First, you should still consider all the quality-of-life factors that make a home purchase sensible. These include location, neighborhood quality and school district, as well as proximity to work, mass transit, shopping and family. Those same factors will help determine a house's resale potential down the road.

Even in a friendly deal, you should still pony up for a home inspection because only this will give you a fully objective view of the home's condition and what repairs or improvements you may need to make in the coming years.

No offense to your relative, but you should probably have a full title search done, too, to determine if there are any judgments or liens against the place. Intra-family transactions can be surprisingly contentious, say real estate attorneys, and that's why you should treat your transaction at arm's length, much as you would if you were buying from a stranger.

If the family member is gifting the house to you or selling it for only a nominal sum that's well below market value, that relative may be subject to a gift tax. There also may be some tax concerns for you if and when you decide to sell the house. Because you're not using an agent, it would be wise to invest a part of the money you're saving in the services of a real estate attorney or CPA to cover all the long-term tax and legal implications.

Another consideration: You will still need to qualify for a mortgage even if the title is being transferred to you, unless of course the house is wholly owned and is being fully gifted by the relative. Some mortgage companies and other lenders offer what's known as a "gift of equity loan," which would allow you to use the difference between the market value and the amount you're paying for the home as a down payment. In this scenario, you can usually avoid PMI, or private mortgage insurance, if the property appraises for at least 80 percent of the loan amount.

Bankrate.com's corrections policy -- Posted: Feb. 10, 2008
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