topic Re: Advantage/Disadvantage to buying house with cash in Mortgage Loans

Advantage/Disadvantage to buying house with cash

Anonymous — Thu, 10 Sep 2020 22:58:58 GMT

Short story, I am fully pre-approved for an FHA mortgage. The house I am wanting (childhood home) is listed about 100k and has some serious repair issues that FHA would require to be fixed via escrow ($8000 not including closing costs). I have also looked into a 203k. The house also currently does not have water as the city has to replace the main service line AFTER the house has a new owner, it's a REO. I do not have that kind of cash, however, my father does. I am looking at possibly purchasing the house with cash to by-pass the required repairs needed to obtain an FHA loan. I would still do an inspection and apprasial to make sure we (he) is not over paying. what are the advantages/disadvantages in buying the house with cash VS me getting a loan? Capital Gains tax, Gift Tax, Income Tax, etc. I do not want to do this if it does not benefit him. The plan would be I fix the issues (it will be my primary residence) and buy it from him within a year (6 months ideally) at a profit of 20-30k. This gets me the house, money to do repairs, upgrades and keeps my mortgage payment low.

Re: Advantage/Disadvantage to buying house with cash

Citylights18 — Fri, 11 Sep 2020 02:50:42 GMT

@Anonymous wrote:
Short story, I am fully pre-approved for an FHA mortgage. The house I am wanting (childhood home) is listed about 100k and has some serious repair issues that FHA would require to be fixed via escrow ($8000 not including closing costs). I have also looked into a 203k. The house also currently does not have water as the city has to replace the main service line AFTER the house has a new owner, it's a REO. I do not have that kind of cash, however, my father does. I am looking at possibly purchasing the house with cash to by-pass the required repairs needed to obtain an FHA loan. I would still do an inspection and apprasial to make sure we (he) is not over paying. what are the advantages/disadvantages in buying the house with cash VS me getting a loan? Capital Gains tax, Gift Tax, Income Tax, etc. I do not want to do this if it does not benefit him. The plan would be I fix the issues (it will be my primary residence) and buy it from him within a year (6 months ideally) at a profit of 20-30k. This gets me the house, money to do repairs, upgrades and keeps my mortgage payment low.

Capital gains tax only applies if that money from your father is coming from the sale of stock or some kind of property. If its just sitting in a savings account its a non factor. If your father did sell something and give you 100k for example that would raise his taxable income for the year, potentially requiring a tax payment. Gift tax only applies if its a transfer of propety into your name.

One other option, if you have the income and credit to support it is to take out a line of credit, put down a larger amount than FHA and go with conventional financing.

I tend to think financing a property in good condition is better than coming up with a ton of cash to buy one. Then sinking even more cash into repairs which can eat up a lot money really fast.

Re: Advantage/Disadvantage to buying house with cash

Anonymous — Fri, 11 Sep 2020 14:24:29 GMT

Thank you for the info!

I do not believe the money would come from the sale of stocks or anything.

I have considered instead of doing FHA with just the 3.5% down, putting 20% down to avoid PMI. I am not able to go conventional because of a 2 yr old BK.

I just don't want him to face any increase in taxes or have a capital gains. I have read the if he buys the property with cash, he can then add it to his trust.