Pros & Cons of Buying a House From Your Parents in Washington State

Buying a home from your parents can seem like a convenient and straightforward way to get into homeownership, but it’s important to understand both the advantages and disadvantages of this arrangement before making a decision. In this article, we’ll explore the pros and cons of buying a home from your parents in Washington State.

Pros of Buying a Home from Your Parents

1. Familiarity: Buying a home from your parents can be a comfortable and familiar experience, as you already have a close relationship with them. This can make the buying process smoother and less stressful, as you’ll already have an established line of communication and trust.
2. Save Money: Buying a house from your parents is a great way to save money. Your parents may be open to selling at a lower price than on the market, and you can both typically waive contingencies. You won’t need a real estate agent, saving thousands in commissions, and your closing costs can be reduced (but not eliminated: you’ll still need to pay closing costs like title insurance, home inspection, and a real estate appraisal as directed by your lender.)
3. Discount: Of course, you may be operating under the assumption that buying a house from your parents is going to mean a big discount. Be aware that your mom and dad may not be able to afford or be willing to take a hit on their equity, and that you need to consider that their home has probably always been viewed as a nest egg for their retirement.
4. Compare Homes: Before you buy your parent’s home, talk to a real estate agent about pricing for comparable homes, so you don’t yank a security net out from under your parents. Encourage them to speak to their personal financial advisor, estate planner and lawyer as well, to make sure they feel that selling to you is a good idea.
5. Emotional Benefits: Buying a home from your parents can be an emotional experience, as you’re preserving a piece of family history and creating a new chapter in your life. Additionally, owning a home that has special meaning to you and your family can bring a sense of pride and satisfaction.
6. Possibility of using Gift Equity: Your parents will have to be careful not to sell the house to you at such a low price that it’s considered liable for a gift tax by the IRS. However, they can give you a gift of equity to help defray the cost of getting into the home, and increase your down payment (thus reducing interest costs). The IRS allows a tax–free equity gift of $15,000 a year to be contributed by each family member involved, which means you and your spouse could technically receive gifts from all four parents to be used for buying a house, for a total of $60,000 gifted. That’s a sizable down payment against the purchase price of your parents’ home, even if you’re paying full market value, and can help keep you away from more drastic tax implications.

Cons of Buying a Home from Your Parents

1. Legal Issues: Buying a home from your parents involves a lot of legal documentation, and it’s important to ensure that all the necessary paperwork is in order. Additionally, the process may require the involvement of a real estate attorney, which can add to the cost of the transaction.
2. Financial Responsibility: When you buy a home from your parents, you’ll be responsible for the mortgage payments and maintenance costs. This can be a significant financial burden, especially if you’re not financially prepared. Additionally, if your parents still have a mortgage on the property, you’ll be responsible for paying off their loan as well.
3. Emotional Tension: Buying a house from your mom and dad can be tricky, and you don’t want the process to wreck your relationship with them or with any siblings or other family members. A home isn’t worth having to stay at arm’s length on holidays for years after the fact.
4. Completely on Board: When you buy a house from family members, there’s always a chance of friction if you aren’t paying market value, or if you’re accepting a gift of equity. You need to ensure your parents are completely on board, and won’t end up with sellers’ remorse when they think about how much they could have got selling privately for fair market value.
5. Home Inspection: On your side, getting that home inspection and setting aside funds to pay for any repairs that may need to be done is the responsible thing to do and can keep you from feeling resentful if a year or two down the road the HVAC gives out or the home needs other major repairs.
6. Transaction: Treat the entire transaction as you would have if you’d decided to purchase a home at a normal sales price through a standard purchase agreement with a total stranger. Even if your purchase price is discounted for being family, you and your parents should keep things professional as buyer and seller.

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Financing Your Parents’ House In Washington State

Decide whether you want to buy your parents’ home with cash, or apply for financing. If the mortgage is assumable, you may be able to take it over with the same loan terms in place, or refinance it into your name. You’ll still need to qualify for the mortgage, and getting preapproved is a good place to start.

When you buy a house from family members, it won’t be an arm’s length transaction between separate parties. This means lenders will look very closely to ensure no-one is being taken advantage of and the lender will likely have restrictions on what type of occupancy they allow. For example many lenders will require the property be used as a Primary Residence. Having a real estate attorney and your family lawyer involved is a good idea, especially if one or both of your parents is unwell, and even more so if the sales price is a steal for the house and the neighborhood.

Challenges Of Buying A House From Your Parents In Wa State

Buying a house from your mom and dad can be tricky, and you don’t want the process to wreck your relationship with them or with any siblings or other family members. A home isn’t worth having to stay at arm’s length on holidays for years after the fact.

When you buy a house from family members, there’s always a chance of friction if you aren’t paying market value, or if you’re accepting a gift of equity. You need to ensure your parents are completely on board, and won’t end up with sellers’ remorse when they think about how much they could have got selling privately for fair market value.

On your side, getting that home inspection and setting aside funds to pay for any repairs that may need to be done is the responsible thing to do and can keep you from feeling resentful if a year or two down the road the HVAC gives out or the home needs other major repairs.

Treat the entire transaction as you would have if you’d decided to purchase a home at a normal sales price through a standard purchase agreement with a total stranger. Even if your purchase price is discounted for being family, you and your parents should keep things professional as buyer and seller.

Getting Preapproved For Buying Parents’ House

Buying a house from your parents should start the same as every other real estate transaction. The fact that you’re buying said real estate from a family member doesn’t mean you get to skip the home loan process, unless you’re paying cash. Get preapproved for your purchase and then you’ll be able to hammer out the details with mom and dad.

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Why Choose Sammamish Mortgage?

At Sammamish Mortgage, we have a streamlined preapproval process, and can help you manage buying your parents’ house. Our real estate professionals have shepherded thousands of loans from preapproval to closing, and can assist you through the tricky business of buying from a family member.

Sammamish Mortgage has been in business since 1992, and has assisted many homebuyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help you get preapproved. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon, and Washington.

Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.