Canadian Money Forum banner

1 - 3 of 3 Posts

·
Registered
Joined
·
1 Posts
Discussion Starter #1
Hello,

I am new to these forums but after reading some of the threads I have decided to seek some advice on my home buying situation.

I have never owned a home but I have been saving for a down payment for some time. I am 25 years old and I currently pay rent in a home my parents purchased in Sept. 2010. They purchased the home (on a whim) with the intention of renting it out to help pay down some of the line of credit on which it was purchased and then in 2020, retiring, selling their current home, and moving in. My moving in was a bit unexpected but welcomed and they have offered to sell me and my partner the house.

It was purchased in Sept. for the amount of 230,000 on a line of credit with 3.5% interest. Currently the line of credit sits at 213,000. My parents have paid the tax, insurance, and interest on the property over the past year and have made a few random payments toward the principal. In total they have paid about 24,000 which they would like to see returned to them in the sale.

Over the past year my partner and I have also paid 12,000 in rent which my parents have agreed to subtract from the cost of the home.

So, now we come to determining the cost of the home for the sale. As far as I can tell, It should be 213,000 + 24,000 - 12,000 = 225,000. My partner and I would then put at 20% down payment on the home and mortgage the remaining. Is this a correct valuation of the home in our situation of re-sale?

The other option is to leave the debt in my parents line of credit and set up some sort of rent-to-own agreement (if such a thing exists). In this case we could dump the planned downpayment on to the line of credit and make rent payments (ie. pay down the line of credit) at the maximum rate our budget allows - something which could be flexible month to month.

So my question is which option is best? Start building credit with a mortgage and try to determine an appropriate cost of the home? OR Stay with the line of credit? Or....door number 3 - buy a different house, abandon the 12,000 we paid in rent and allow my parents to rent the property to someone else.

Sorry this question is so long winded - I don't really know anything about buying a home and there are just so many variables to consider. If this topic has been previously discussed please direct me to the archived thread.

Thank you,

David
 

·
Registered
Joined
·
276 Posts
That's a nice offer from your parents....personally if it was me in your shoes...

I'd ensure buying the place is not going to effect their retirement plans since you stated their intention was to move into your rental in a few years, if they are fine with it and your happy to buy the place (and see yourselves there past 2020) procceed.

Personally I'd get my own mortgage so I wouldn't have to worry about money matters between family, it would also free up your parents LOC in case they wanted to invest into a new property....If you do stay on their credit you'll need to keep good records of all the payments as it's their LOC and they'd be free to add to it, or pay it down quicker themselves.

Since right now the property is an investment your parents would have to pay capital gains on the sale of the house..seeing as they just recently bought the property, a 225 000 cost seems like it could be close enough to FMV and they'd claim the loss..an appraisal might be required though in case of an audit..something to look into as I'm no realestate or tax expert.
 

·
Registered
Joined
·
420 Posts
The other option is to leave the debt in my parents line of credit and set up some sort of rent-to-own agreement (if such a thing exists). In this case we could dump the planned downpayment on to the line of credit and make rent payments (ie. pay down the line of credit) at the maximum rate our budget allows - something which could be flexible month to month.
This option would not allow you and your partner to put the property in your name. IMO it is the most complicated option in your situation.

So my question is which option is best? Start building credit with a mortgage and try to determine an appropriate cost of the home? OR Stay with the line of credit? Or....door number 3 - buy a different house, abandon the 12,000 we paid in rent and allow my parents to rent the property to someone else.
If you decide to purchase the house from your parents, contact a mortgage broker. Their services will be free for you, you can get a pre-approval for a mortgage and an appraisal to help determine FMV of the house as this is not an arm's length transaction. You may also consider contacting a real estate lawyer re: land transfer taxes etc as these fees will have to be taken into consideration.

Personally, I would find a different house not owned by family.

Good Luck.
 
1 - 3 of 3 Posts
Top