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Asked by Maggie, Michigan Fri May 30, 2008

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Jed Lane, Agent, Petaluma, CA
Fri May 30, 2008
To clarify my answer.
The loan question is tied to timing. If the loan has funded he might have conditions that say he has to pay some amount if he pays it off early, a pre-payment penalty.
If the loan has not funded he migh be able to replace it with the money form the relative.
All the other info about resale and lease option are really moot, untill it is clear if he has been funded by the bank to buy and the offer contract he is bound to.
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Don Tepper, Agent, Burke, VA
Fri May 30, 2008
There are complications with the different scenarios you pose.

For example, he undoubtedly applied for a loan, stating it would be his primary residence. Read the loan documents closely, but there may be penalty provisions (up to the lender being able to demand full payment) if the lender believes that your son lied on his mortgage application. I understand from your question that, at the time he applied, he hadn't received the family member's offer. Still, from the standpoint of a lender, a guy comes in, says he's planning to buy a house to live in, then rents it out instead.

Rent with option: It's unlikely the rent payments will come close to the mortgage payment. I know that certain areas of Michigan do allow people (such as investors) to buy and immediately rent out for a positive cash flow. But you'd really have to check that out. Find out what the rents are for that type of property. Take into consideration all the costs of ownership. Then reduce the rental income by 25% to allow for vacancies, repairs, and maintenance. So, for instance, if all the costs of the property--principal, interest, taxes, insurance, and HOA fees (if any) are, let's say $750 a month and the going rent for the property is $1,000, that would basically be a break-even situation. Do those numbers work for you?

Resell? Not unless he bought substantially under market. The transaction costs in selling a property can be roughly 10%. Realtor commissions, certain transfer taxes, settlement fees, and so on. So let's say he paid $180,000 for the property. Very rough ballpark numbers, he'd have to sell for close to $200,000 just to break even. And that doesn't include any holding time (monthly mortgage payments).

Talk to a good real estate agent in your community. He or she will be able to fill in some of those missing numbers and perhaps give you some suggestions.

Hope that helps.
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Maggie, Home Buyer, Michigan
Fri May 30, 2008
To clarify my question, the family member was going to buy him the house and my son would make payments to him. I am also looking for a house and this family member offered to buy us houses close by one another or side by side.
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Jed Lane, Agent, Petaluma, CA
Fri May 30, 2008
Sounds to good to be true. Probably is. Why would someone buy you a house and make payments to him? Why not just buy him the house he's in contract on now?
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