South San Francisco, CA August 28, 2017 by Bill Wolfe – Big Valley Mortgage NMLS #16095/1850
PREFACE: Many long time residents looking to move out of the area would like to see their adult children remain in the family home. Here are some tips on how to do that, from former South San Francisco resident Bill Wolfe, a top producing Mortgage Loan Planner.
QUESTION OF THE WEEK COMES FROM Stella:
MY GRANDPARENTS ARE WILLING TO SELL ME THEIR HOME AT BELOW THE FULL MARKET VALUE, WHAT DO I DO NEXT?
First we need to make sure you qualify for a loan that will allow you to purchase the property and then determine what options are the best available for you.
One of the big benefits of buying a home under market value from an immediate family member is that you can use the equity as your down payment. In your situation the grandparents want $300k for the home but since the value is $375k you can write the contract at $375k and get a loan for $300k which you use to pay them off. That $75k difference can be gift equity from them and can be considered as your down payment (no money changes hands and just a accounting/ balancing figure). SO BASICALLY YOU DO NOT NEED ANY DOWN PAYMENT. Also since that $75k is 20% equity you will not have mortgage insurance. In some cases with a high enough appraisal you can write a higher contract and get a larger loan to cover all of the closing cost. IT IS POSSIBLE TO PURCHASE WITH NO MONEY OUT OF ANYONE’S POCKET.
The other thing you will want to do is to check with the county property tax assessor office as you may be able to carry their current yearly property taxes over to your tax base since it is an immediate family member. If the county was to re-assess the home at the $375k purchase price your yearly property taxes would be around $4500 per year. Since their currrent property taxes are only $2000 per year you can dramatically reduce your overall monthly payment.
A few other thinks to keep in mind would be:
do we want to use/ pay a realtor to make sure the contract is written correctly and all the legalities are covered.
do we want a pest report and clearance
do we need a home inspection and do we expect to buy “as is” or request repairs be completed before we purchase
Becuase you are getting a loan you will need to use a title/ escrow company and they will ensure that all liens are paid off prior to the close of escrow.
I handle these types of transactions all of the time and have done so for years. I am happy to talk with all parties and explain how this all falls together.
Feel free to let me know if you or friends ever have any questions.
Bill Wolfe was born and raised in the Avalon Park neighborhood of South San Francisco and was graduated from SSFHS class of 1984 and continued his education at SFSU pursuing his career in finance. Today he is a top producing Licensed Mortgage Planner having excelled in the industry for over 20-years. Bill and his wife Tanya have two sons attending University of Nevada and enjoy family excursions including mountain biking, boating, skiing and most outdoor activities.