Buying a house from a family member is a unique opportunity that comes with its own set of advantages. With those, however, could be some potential pitfalls.
Let’s explore the ins and outs of the process, to help you make an informed decision that’s right for your specific situation.
Can you purchase a home from a family member?
You can buy a house from a family member and it can be a convenient way to purchase a property you’re already familiar with. By doing this, you can avoid some of the uncertainties that come with traditional real estate transactions.
The benefits of purchasing a home from family
Buying a home is a significant investment of both time and money. While homeownership can be rewarding, it can come with its fair share of stress and uncertainty. Purchasing a home from a family member can help alleviate some of these challenges. Here are some key advantages:
1. You know the home
One of the biggest advantages of buying from family is your familiarity with the property. You may have grown up in the house or spent ample time there. You know its strengths and weaknesses, what you love about it, and what you'd like to change. This personal connection can be invaluable as you plan for the future in your new home.
3. You may not need a real estate agent
In many cases, family transactions can proceed without the need for a real estate agent. This can result in cost savings for both parties, as there won't be any agent commissions to worry about. Plus, the transaction can be more flexible and accommodating to your schedules.
2. You know the seller
Having a personal relationship with the seller can offer peace of mind. You're likely to have insights into how well the property has been cared for, and you can likely trust that the seller is transparent about the property's condition and history.
4. You’ll have more flexibility
Dealing with a family member can offer flexibility that's often lacking in standard real estate transactions. You may find it easier to coordinate timelines and even live in the property with your family member until they vacate, making for a smoother transition.
The downsides of purchasing a home from family
While the advantages of purchasing a home from family are certainly appealing, it’s essential to consider the potential drawbacks:
1. Family members may take advantage of you
Trusting family members can sometimes lead to misunderstandings. There's a risk that they might inflate the property's price or change the nature of a financial gift into a loan when their circumstances change. This is easily solved by drawing up a more formal agreement like a contract and getting surveyors involved early in the process.
3. There could be more restrictions
Lenders are cautious when it comes to transactions between parties who know each other, with their aim being to prevent fraudulent activities. This can result in more stringent requirements, but providing adequate proof and documentation will help support your position.
2. It could create or exacerbate family tension
Mixing business with family can be challenging. Disputes over the sale or the property itself can strain relationships, so wherever possible have clear expectations and work with a mediator when necessary.
4. There may be tax implications
Gifts of equity and other financial arrangements may have their own tax consequences. We recommend consulting with a financial adviser or tax attorney to understand these implications fully.
Can you buy a house from family under market value?
You can purchase a property from a family member at a price below market value. This can be advantageous for both parties, but it's crucial to navigate this process carefully to avoid potential tax issues and ensure a fair transaction.
Sometimes this situation is referred to as gifted property, but this too comes with potential tax implications.
For this reason, it’s crucial to navigate the process carefully and ensure a fair transaction.
How to get a mortgage when purchasing a home from family
We can break the process down into six general phases, though everyone’s circumstances will differ. Below are the steps we recommend if you’re interested in buying a house from family and need to get a mortgage:
Get a mortgage in principle
Buyers in family transactions have specific rules to follow, just like any other borrower. That being said, there are some additional considerations to make. With a mortgage in principle, borrowers can feel more confident about a lender approving their mortgage and will have a better understanding of how much they can actually afford.
Decide on a purchase price
You want to ensure that the purchase price for the house aligns with fair market value, and would be similar to what you’d pay if you were buying from a stranger. You can also consider factors like gift of equity, cash gifts, or other credits. Be sure to ensure transparency in the whole transaction.
Create a purchase agreement
Draft a legally binding purchase agreement that outlines all the necessary terms and conditions. We always recommend working with a lawyer to ensure a comprehensive understanding of the agreement.
Apply for the mortgage
Lenders will rigorously review your financial documents to ensure your eligibility and authenticity. They will make sure you’re in good financial standing, that there are no issues with the property title, and that your affordability matches the property.
Get a survey
Get a thorough home inspection and title search to address any potential issues. These steps can provide peace of mind and protect your investment
Close on your new home
Once all the requirements are met, finalise your purchase by signing the necessary documents and transferring the title to your name. All is now done!
Buying a house from a family member can be a rewarding experience when you approach it with careful planning and consideration. Remember to consult with professionals wherever you need to, including surveyors, solicitors, and of course, a mortgage adviser.
We know some good ones. Get in touch with us today and let’s chat about your next steps!
Buying your first home? Check out our app to get you started.
Download the Mortgage Advice Bureau app
Our app is a digital mortgage coach designed to help you save up, plan, and track your home buying journey – whether you’re buying your first home, or just fancy a move.
We’ll guide you through step by step to ensure you always know what’s coming up next.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
Related Articles
Negotiating house prices: your key guide
How to survive moving day
