Buying a Family Members House in Texas
These types of loans are defined as a non-arms length transaction. Used when there is an existing relationship between the buyer and the seller. It is often assumed that the buyer isn’t paying fair market value for the property. In other words, the property is sometimes sold at a discounted price. Maybe that relative wants to do you a favor by helping you purchase the property or keep the property in the family, there are a variety of reasons for this loan.
The loan approval works like a regular purchase for these transactions as far as paperwork goes. Depending on the loan product you would still need to qualify with your income, credit score, assets, and any other requirements determined by your loan officer.
What is a Non-Arms Length Transaction?
Non-arm’s length transactions are purchase transactions in which there is a relationship or business affiliation between the seller and the buyer of the property. Various loan products and options allow non-arms length transactions for the purchase of existing properties. (unless excluded for the particular scenario, such as delayed financing)
What you need to know:
This is not a regular purchase although there are many advantages – there are extra steps when buying from a family member. Some particulars come into play when financing is involved. Your relative, the seller generally must meet 1 of the requirements below.
In most cases, we have to be able to show 1 of the following items for title to ensure the proper lending policies.
- Seller owns and occupies another property as their homestead; or
- Seller is simultaneously buying another homestead property
Both buyer and seller will be asked to execute documents at closing reflecting the purchase transaction is a bona fide sale without forgery or collusion to defraud the mortgage lender. In these affidavits the seller will disclaim the current property as homestead and claim other property as homestead, buyer will designate this property as their homestead, both parties will swear that they have no agreements to reconvey the property back to seller and additional certifications to title.
What Is A Gift of Equity?
A gift of equity refers to when your friend or family member sells you the property at a price below the current market value. Typically, this occurs when the sales price is lower than the actual market price of the home and the difference becomes a gift of equity. A gift is a great option to consider that can help you get into the home for free – the complete down payment and closing costs can be credited from the seller to the buyer.
A gift of equity has several requirements:
- The seller must have an appraisal completed on the home if determined by the lender
- Gift of Equity paperwork must be completed, documenting the gift doesn’t have to be paid back
- A settlement letter must note the gift during closing
For more information about Texas Family and Relative Loans, their benefits and loan options and how it may apply to you, please contact us direct 281-627-4222 or submit the “Quick Quote” form on this page.
