BUYING A PARENT'S HOME WITH NO DOWN PAYMENT

BUYING A PARENT'S HOME WITH NO DOWN PAYMENT

SarahHilton123 travel blog images

travel blog

 

Due to the rise in prices on the real estate market in recent years, and more particularly in recent months, it is becoming more and more difficult for buyers to accumulate the amount necessary for their down payment. This fact is even more true for young buyers who are making their first real estate appraiser near me.

There are, however, several alternatives to accumulating a down payment as we usually conceive of it. This is the case with the gift of equity, which acts as an important lever for the members of a family, often the children, who want to buy back the family home.

 

What is the Equity Gift?

Parents wishing to lend a hand to their offspring can, in accordance with certain conditions, offer part or all the amount necessary for the down payment for the purchase of the family home. This is a completely legal practice that allows the recipient of the donation to acquire a property without any financial contribution.

Considered a traditional down payment, although rarer than personal savings, the non-refundable donation must absolutely come from a close family member (father, mother, sister, brother, grandparents, etc.). Although the gift is an alternative that can also be used to buy a new residence, the gift of equity specifically concerns the redemption of a property already owned by a family member.

The gift of equity consists in giving to a child or a close relative a property held by another member of the family, at a reduced price. The cost reduction offered in relation to the market value will represent the amount of the donation and will replace the purchaser's down payment. In all cases, the market value of the property will have to be assessed by a professional to validate the equity donation.

In addition to making, it possible to acquire a house without a down payment, buying the residence of a close relative makes it possible to be exempt from the welcome tax. Indeed, when transferring a property between generations and commercial real estate appraiser of direct lines, such as a parent and a child, the new owner does not have to pay transfer taxes. This is an opportunity to make great savings!

 

How does the Equity Donation work?

First, it's important to clarify that the equity gift only works if the parents (or any other donor) hold equity in their home. This corresponds to the difference between the market value and the mortgage balance. The more mortgage payments the owner has made, the lower the remaining mortgage on the property relative to market value, the greater the available equity (or net worth).

When donating equity, the transaction of the property takes place at a lower cost than the market value, although it is based on it. The difference between the market value and the selling price will be considered as the amount of the gift of equity, a gift which is transmitted from the seller to the buyer. This can then be used as a down payment, without the buyer having to take money out of their pockets.

A gift of equity can be used for a primary residence, secondary residence, rental or commercial property, and land. Most of the time, it can be applied at the same time as other financial assistance programs offered to buyers, such as the First-Time Home Buyer's Incentive, RAP, etc.

However, several rules govern the gift of equity. For most financial institutions, it must imperatively be carried out between members of the same family. The market value must also reflect the fair price of the property: it cannot be artificially inflated to increase the amount of the gift. To ensure the real value of the home in question, financial institutions generally mandate a chartered appraiser to obtain an objective nationwide property and appraisal services.

A donation letter signed by the donor may be required by the financial institution before accepting the request. In addition, the promise to purchase must clearly stipulate the established market value, as well as the sale price chosen according to the amount of the donation.

 

How is the equity donation amount calculated?

As mentioned earlier, the amount of the donation corresponds to the difference between the real value of the property and the established selling price. Thus, if the market value of the house is assessed at $350,000 and the transaction amounts to $315,000, the amount of the donation will be $35,000. This represents a down payment of 10% of the value of the property, which allows the buyer to obtain a loan without having to pay a penny out of pocket.

If the donation is greater than 20% of the value of the house, or more than $70,000 in the case of our example, the buyer may also be exempted from subscribing to mortgage loan insurance.

There is no obligation as to the amount of the donation to be offered. The amount chosen could represent only 5% of the value of the property or any other amount negotiated between the family members. It is also possible for the buyer not to be satisfied with the donation for his down payment. He can for example decide to improve it with his personal savings.

 

Buying a Parent's Home: The Importance of Fair Market Value

As with any real estate transaction, the sale of real estate between persons of the same family will be considered to have been made at the fair market value of the property. This fair market value represents the highest price that can be obtained in a free market, between a buyer and a seller acting in an informed, enlightened, and independent way.

Although the gift of equity provides that the family home will be sold “at a discount” so that a certain amount can be used as a down payment, the transaction must be based on the fair market value of the property. home appraisers near me are Under no circumstances may the seller inflate the value of his residence or undervalue its price to benefit one or the other of the parties involved, failing which both parties could suffer tax penalties.

It is also a bad idea to base the transaction on the value of the municipal assessment because it is very likely not to reflect the real value of the house. Want to know what the difference is between the market value of a property and the value of its municipal assessment? See our dedicated article on this topic.

To know the market value of the family residence, the best solution is to call on a certified appraiser who is a member of the OEAQ. He will be able to accurately determine the current value of the property on the market. You can then discuss with your family, in full knowledge of the facts, the amount you wish to allocate to the equity donation.

 

Are you looking for an expert to assess the market value of your property?

Aipraiser can assist you to discover a certified commercial real estate appraiser. By telling us about your project, we will put you in touch with the appropriate resource people, free of charge. Just fill out our form (in just a few minutes) and you can be put in touch with experts.


Add SarahHilton123 to your subscriptions feed

SarahHilton123 travel blog images




Leave a Comment:

Or Sign Up To Leave A Comment

To notify a previous commenter, mention their user name: @peter or @peter-smith if there are spaces.


Create Your Free Travel Blog

Join others and Track That Travel

Track That Travel

travel blog, free travel blog travel blog, free travel blog travel blog, free travel blog

® 2018 Track That Travel