I’m in an extremely fortunate position where my Mom, upon learning about current mortgage rates and why I haven’t bought a house yet, wants to essentially be my bank to buy a house. As in, she wants to fund the house, put it in my name, and I pay her a reasonable down payment and pay a “mortgage” to her at 2-3%. So what would be the best way to do this?She buys the house then transfers the deed? Should she just transfer the cash and I purchase it?
Side note: I know people are usually against doing big purchases with family, but I don’t really see a downside since the house will be in my name, and with that 2-3% rate, the payments will be similar to my rent even considering maintenance and property tax.
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Regulations on this will differ by state. The best move would be to find a local real estate lawyer. They wil instruct you on how to file all the proper paperwork with the local government, and also advise you on things you haven’t thought about, like how to structure your wills to make sure everyone is protected in the event something unfortunate happens to either of you.
Also don’t use this private transaction as an excuse to save money to skip any steps. Go get the title search and inspection done. You don’t want any surprises. If the inspection finds a fundamental problem, you might still go through with the purchase, but at least you’ll know up front what you’re in for.
This is good advice. Just because you are family doesn’t mean you shouldn’t involve a lawyer.
That’s good advice, thanks! I’m in Texas specifically, but you’re right contacting a professional is the right way to go. I guess I’m just thinking about what the process in a general sense might look like.
As for wills: Her will is set up to leave property to me, and finances to my brother. My will leaves everything to my wife, then to my mom, then brother. But if the house deed is in my name, does this matter?
As for home inspection and related: I’m seeing this as an opportunity to get a more detailed inspection than usual. I’ve found someone who is a bit expensive but is very thorough, using things like flir cameras to inspect water pipes and such. And I’ve been disregarding any realtors who say inspections aren’t necessary.
My mom mortgaged me when I bought my current house. I’m in BC, Canada so you’ll want to check on your local rules. Here, the process of buying a house is separate from the process of getting a mortgage so if you don’t need a bank mortgage no one is going to scrutinize where the funds are coming from.
I got a realtor and went through the standard home buying process. As far as the seller and realtor were concerned, it was a cash sale and they didn’t care where the money was actually coming from, just that financing didn’t have to be a condition. They guided me through the offer process, told me when to get a lawyer to do the purchase paperwork, and the lawyer gave me details on how Mom should make the deposit and final payment. She could also have transferred the money to me and I could have done the payments myself but that was logistically difficult in this case since my credit union doesn’t have a branch where I live.
Mom and I then contacted a notary to draw up a mortgage contract. In our case, she’s not charging interest since she’d have to pay capital gains tax on any income over the principle. On paper, I own the house. Mom is listed as a lender on the title, exactly the same way a bank would be. If I default on my mortgage, she has the right to foreclose and force a sale. Once the house is paid off, the loan goes off the title. We have a handshake agreement that if my parents die before it’s paid off, the remainder will come off my portion of inheritance to keep things fair for my sister.
We could have set up the mortgage agreement first, but it made more sense for us to wait until we had the final numbers from the house sale.
Thanks for sharing your experience! I didn’t even think about a mortgage being possible with someone instead of a bank. I’ll have to look into if that’s possible in Texas.
This is generally known as “land contract/contract for deed”. People do it all the time. As suggested in another comment, you should consult an attorney. If either you or your mom is hesitant to do that, you should ask yourself what happens to your house and mortgage if (God forbid) your mom were to die? Don’t wait to find out. Get an attorney and make sure that it’s all ironed out in advance.
Interesting. Looks like a land contract would have the deed be in my Moms name, but we want the deed to be in my name from the start. I know I should consult a lawyer, but do you know if this land contract can be set up this way?
I don’t know.
I would not “[transfer] the deed” for a house without it being part of a sale or talking to a legal and tax expert beforehand, since that could come with rate of tax of 40% for the IRS alone: https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax https://www.irs.gov/instructions/i709#en_US_2024_publink1000292384
If the owner of the house is worth a lot and dies, the IRS could take 40% too: https://smartasset.com/taxes/all-about-the-estate-tax
There is a an “annual exclusion” that applies to gifts so that might help you transfer wealth without anyone dying: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes