Author Topic: Should we buy my in laws' house?  (Read 7941 times)

thenewnorm

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Should we buy my in laws' house?
« on: September 22, 2015, 07:58:30 PM »
My husband and I have been living in his parents' house since we got married last year. We currently only utilities-a great deal. The house is in a great area one block from schools, restaurants, and our church. It is a ten minute drive from where I work and twenty minutes from where my husband works. We work in opposite directions from one another. My in laws have offered to sell imusbtheir house.

Details:

The house is worth about 235,000 according to tax records and comps. My father in law bought it for 200,000 and says that's all he wants back. My thought is that they can gift us the 35000 as part of a down payment given they'll make the money back at selling. We also have about 15,000 to put towards the down payment.

Debt: 6000 in student loans at 6.8% paying down 1400 monthly.
10000 left on a loan for a 2012 Kia soul at 4.2%. Paying minimum payment of 254 currently.

Assets:
2013 Subaru outback paid off.
10000 in my 401k (contributing 10%)
8500 in husband's 401k
5000 in savings account
10000 gift from deceased grandfather earmarked to be used on a house.

Income: me- 58000 a year. Husband 36000 a year.

The in laws aren't pressuring us to decide one way or another but do need an answer soon as they want to get the house market ready and put it on the market by spring if we pass on the deal. We plan to live in this area for the foreseeable future. This house could either be a great forever home or something we could make a great deal on by selling in 5-7 years. My main question is should we buy it? It's a big commitment and we want to make the right decision

Rezdent

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Re: Should we buy my in laws' house?
« Reply #1 on: September 22, 2015, 10:02:52 PM »
Something to consider is whether or not there are other family members.
If there are, your buying this property may come back later as you taking advantage of the in-laws.  Doubly so if you make any profits on the deal at any time in the future.

MoonShadow

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Re: Should we buy my in laws' house?
« Reply #2 on: September 22, 2015, 10:19:28 PM »
Sounds like a good deal for you & your husband, but just make sure that your inlaws aren't also financing this thing in any way.  Do not take the down payment gift.  Get that money some other way, even a 401k loan for the down payment would be better.  Owing your inlaws money is a really good way to 'poison the well' should you run into financial difficulties in the next couple of years.

ShoulderThingThatGoesUp

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Re: Should we buy my in laws' house?
« Reply #3 on: September 23, 2015, 06:11:38 AM »
If you like it, sure, but pay market value. That $35,000 will be well worth the lack of concern from other family members.

acroy

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Re: Should we buy my in laws' house?
« Reply #4 on: September 23, 2015, 06:55:26 AM »
So - they're offering you $35k gift to live in a good area you like? sounds like a no-brainer! I'd say do it. Be careful how the details are arraigned to ensure no issues with taxes, etc. I'd not worry about other relatives - this is between you and them.

AlwaysLearningToSave

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Re: Should we buy my in laws' house?
« Reply #5 on: September 23, 2015, 07:56:10 AM »
I would be more concerned about the effect of accepting the $35,000 gift on your relationship with your in-laws than other relatives.  It is unclear to me whether you are living with your in-laws, or just living in an extra house they own.  Assuming it is an extra home, they fact your in-laws have an extra house lying around and are willing to give a $35,000 gift, they are not hard up on cash and will support their other children (if any) in similar ways as they are supporting your husband (and you).  The gift is between you and them, and need not concern others.  If the $35,000 is a significant chunk of their net worth, then I would be a bit more concerned about the relationships with other relatives. 

Even if $35,000 is peanuts to your in-laws, you should be concerned about how accepting that gift affects your relationship with them.  Rarely are family gifts truly "no strings attached."  What are the strings going to be?  Expectations to help the parents in the future?  Help other family members?  Will they expect you to be at every family event without fail?  Will the in-laws feel entitled to know the details of your personal finances?  Will they render unsolicited and unwanted opinions on how you should use your money?  Really look closely at this question, as it should determine your answer as to whether you accept the gift.  If you are lucky enough to have in-laws who respect boundaries and are capable of giving no-strings-attached gifts, then go for it.  If not, proceed with extreme caution, as your freedom and the strength of your marriage are more important than a $35,000 windfall.

Also, its not really your problem, but your parents should be aware of the gift tax consequences.  The $35,000 gift would exceed the $14,000 annual exemption and will at least trigger gift tax reporting obligations, and perhaps gift tax liability (though this is unlikely unless your in-laws are very wealthy).

DaveR

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Re: Should we buy my in laws' house?
« Reply #6 on: September 23, 2015, 02:02:45 PM »
Let's see... combined $94,000 in annual salary ($7800/mo), no rent or mortgage payment since sometime last year (10+ months), paying off student loans (1400/mo) and minimum (!!) car payment of $254/mo. And you only have $5k in savings? (the $10k gift doesn't count). Where is the money going???

You are looking to buy a $235k house. 20% down is $47k. I don't know all the details, but this deal isn't one a bank is going to be jumping to finance for you. The short answer is: you're not ready to buy that house.

If it's one you love, how about renting it from the in-laws? You could even rent-to-own so your payments ultimately apply to a purchase.

BarkyardBQ

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Re: Should we buy my in laws' house?
« Reply #7 on: September 23, 2015, 02:10:46 PM »
Also, its not really your problem, but your parents should be aware of the gift tax consequences.  The $35,000 gift would exceed the $14,000 annual exemption and will at least trigger gift tax reporting obligations, and perhaps gift tax liability (though this is unlikely unless your in-laws are very wealthy).

The limit is 14k per parent per child. 14k each from father/monther to child for $28000, 7k from either to the spouse.

Axecleaver

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Re: Should we buy my in laws' house?
« Reply #8 on: September 23, 2015, 02:36:52 PM »
To avoid the gift tax, they could possibly structure this as a 235k sale with the seller providing 35k in closing costs. The parents net 200k with the buyer providing a 14k down payment. That assumes there is no current mortgage to satisfy. This route could have negative implications on your property taxes. If they sold it to you for 200k, you could probably contest the assessment.

The problem is, the underwriter is going to choke on you only having a 15k down payment for a 235k purchase. I don't know if you'll be able to get a loan with 5% down. Maybe an FHA mortgage as first time buyers.

You should also be aware of needing to "age" the money you have available for a down payment. Make sure that has been in your account for at least three months, or if not, be prepared to explain where it came from (in writing).

Before you move forward, I recommend you get a handle on where your money is going today. With so little saved, can you afford the mortgage payments? Do you have enough to afford maintenance? What happens if you run into a 5k surprise like a furnace or roof repair?

Bruinguy

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Re: Should we buy my in laws' house?
« Reply #9 on: September 23, 2015, 03:18:45 PM »
It would probably be helpful to do a rent vs buy analysis. 

What would it cost to rent nearby?

How much is it going to cost to buy it?  A $200,000 mortgage at 4% for 30 years would be about $950.  Plus, you will have property taxes and insurance.  Plus there will be maintenance costs.  If you buy, will you save in taxes due to the home mortgage interest deduction?  How much?

MoonShadow

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Re: Should we buy my in laws' house?
« Reply #10 on: September 23, 2015, 03:49:16 PM »
Are either of you former military?  What about your in'laws? Are either of them former military?

SwordGuy

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Re: Should we buy my in laws' house?
« Reply #11 on: September 23, 2015, 04:41:56 PM »
If you buy, will you save in taxes due to the home mortgage interest deduction?  How much?

The answer to the above question is almost certainly HELL NO.


Bruinguy

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Re: Should we buy my in laws' house?
« Reply #12 on: September 24, 2015, 11:11:17 AM »
If you buy, will you save in taxes due to the home mortgage interest deduction?  How much?

The answer to the above question is almost certainly HELL NO.

Care to elaborate?

My tax bill is lower than it would otherwise be because of the mortgage interest deduction.  I didn't think that was uncommon.

thenewnorm

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Re: Should we buy my in laws' house?
« Reply #13 on: September 24, 2015, 11:39:32 AM »
Thanks for the replies guys. We're definitely looking at where our money goes. the good news is we have time to buckle down and save a lot more

Sibley

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Re: Should we buy my in laws' house?
« Reply #14 on: September 24, 2015, 11:43:09 AM »
OP, consider posting a full case study once you have spending data. Might be helpful.

 

Wow, a phone plan for fifteen bucks!