if i purchase a home that is under market value do i need a down payment?

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I am considering buying a house from a family friend and looking at the best way to do it. The house is worth 160K-180K but would be purchasing it for somewhere around 120K. Being that the house is valued so much more would I not need a down payment and how do I figure in taxes and such? I am a first time home buyer with a decent salary, but only been working at the current place for 1.5 years. Any suggestions on how to go about doing this?

6 comments to if i purchase a home that is under market value do i need a down payment?

  • Steve D  says:

    The first problem is whether or not the house will appraise for the full 160K or whether the appraisal will come in around $120K -- market value as determined by a real estate agent tends to be different than the appraisal. Next, most banks require two years of employment at your employer, so you may not get approved for another 6 months.

    Having said that, there are ways to structure the deal to use the any excess value as part of the down payment. A decent real estate lawyer can help you with that if it gets to that part. As for taxes, talk to the tax assessor’s office, they will know the formula and when the property will be assessed (this is different from the market appraisal and the sales appraisal).

  • RED  says:

    Look up the public record to see the tax assessment then get a realtor to run the comps (sold houses) in that area of similar houses. Sometimes it is quite a surprise when you see what has sold. A realtor’s services are free.. any fees are paid at settlement out of the seller’s proceeds. You may be able to get owner financing with nothing down, or if it qualifys for FHA loan or USDA loan, you need 3.5% down, which the owner can pay. Talk to a good loan officer too that can really help.

    Good Luck.

  • Cendi  says:

    If it is really worth, $160K and you are purchasing it for $120K, the $40K discount is considered a “gift” and the giver is responsible for paying a gift tax of about 20%.
    -- is the seller willing to do this for you?

    Additionally, it would be very hard to get a 100% loan in today’s market. That is because if you have limited investment in the property, it would be theoritically easier for you to walk away from the property.

  • Common Sense  says:

    Obviously. And real “market value” is what it actually sells for.

  • Bob  says:

    If the home qualifies for USDA Rural Housing financing you can include your closing costs and literally buy the home with no money out of pocket. The program does not require a down payment. All loan programs want at least a two year employment history but that does not mean it has to be with the same employer. Being in school can count toward that history as well. You should be OK with your current job situation.
    If the home is not in a rural area, FHA financing requires a 3.5% down payment. The seller is allowed to contribute up to 6% of the purchase price for your closing costs but they cannot pay your down payment for you unless you are related and it can be given as a gift.

  • d3  says:

    First off if you have not done so already, get an appraisal on the home if you are really considering buying it. This way will have a better grasp of its actual value. Although you will most likely need to put money down, if the home appraises for well over the asking value, you “may” be able to offer more for the home in exchange for money back. For example you may be able to offer $140k, and request $20k towards closing and the down payment of the home. This however is assuming the home appraises for over $140k and every one agrees to the terms of the offer conditions.

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