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Can I sell my house to a family member for below market value, or is it better to sell at market value and gift the down payment?

My second home is appraised at $175,000 and I would like to sell it to my niece for $150,000 (she has a credit score of 590). by emilyvalhoun from Saratoga, California. Mar 11th 2013 Reply


Abdi Mohammadian (mohammadian)
#861 ranked lender in California - 33 contributions

One of easiest and least expensive approaches is a private "owner-financed" sale. That's where your son makes monthly payments to you instead of having him go through a lender. This can be arranged pretty quickly and could save your son thousands of dollars in interest. Make sure the payments are tailored to your income needs, assuming you're not set for life financially. If you do go this route, arrange it so that if your son does default, the home returns to you automatically, whereupon you can sell it on the open market

Mar 11th 2013
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William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,726 contributions

FHA allows for "Arm's Length Transactions".. Meaning when a family member purchases a home from another family member.. They will require a Gift of Equity letter... There are provisions in FHA financing for both the gift of funds or the gift of equity.. The paperwork will be different, but the net result will be the same. It's allowed... the bigger challenge will be the credit score of your Niece.. for 98% of the lenders out there, she's denied.. For those few lenders who do lend below 600, the guidelines are so strict that very few actually get approved.. Obviously there's a big incentive for her to get her credit cleaned up.. But until she does, there are very few options available to her.. Also, keep in mind that adding a non-occupying co borrower (which is allowed by FHA), will not help with bad credit.. co signers can help with insufficient credit or income, but not bad credit.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Mar 11th 2013
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Crestico Funding (CresticoFunding)
#313 ranked lender in California - 337 contributions

Hello Emily,the short answer would be that you sell it to your niece at fair market value so she could use the equity as her down payment, however she still needs to be able to qualify for a loan.gift of equity is a common way of transferring/selling a property to a family member. if you need more information please visit http://www.crestico.com/real-estate/im-a-buyer/second-homes/2nd-home-as-interfamily-gifts/

Mar 11th 2013
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Kim Clancy (TheClancyGroup)
#56 ranked lender in Colorado - 9 contributions

HelloShe more than likely will not get financing with a 590 credit score so you could be in trouble either way.Perhaps the best option would be to finance her yourself while she repairs her credit, is this an option?If you'd like more information on this please email mekclancy@pinnacle-mortgage.comThanksKim

Mar 11th 2013
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Peter Botros (PeterBotros)
#70 ranked lender in New York - 895 contributions

You need to work on getting her credit reapaired.

Mar 11th 2013
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Dave Metsker (DaveMetsker)
#37 ranked lender in Oregon - 2,317 contributions

Sell it to her at $175,000, on contract-for-deed terms. After 12 months, during which she works on her credit, she can refinance in her name at good conventional terms, and pay you off. You can then lower the payoff to 80% of the then-current appraisal amount.

Mar 11th 2013
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Jason Vondrak (jvondrak)
#217 ranked lender in California - 1,741 contributions

With a credit score of 590 your niece is very unlikely to be able to find a lender that will loan her the money to purchase the home from you. While she works to improve her credit, she could give you money to pay for the monthly mortgage payment and once her credit score is strong enough you can sell her the home and gift her the equity that she has helped you build.

Mar 11th 2013
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Carlo Sanchez (MortgageLendingPro)
#0 ranked lender in Utah - 1,163 contributions

There are lenders that will go down to a 590 but they do require a bigger down payment and gifting that much would certainly help. If you need to sell the house right away then look for a lender that can go down to a 590 fico and I know of a couple that do loans in California so PM me and I will set you up with a couple lenders that do. If you don't need to sell the house right away then do the private sale if you own the house outright but if you still have a lien on the property consult a real estate attorney as you do not want to violate the "Due on Sale" clause with a seller financing and I several people that their lender exercised that clause when they did the whole lender financing situation so you do run the risk of having to pay the home off within 30 days if you there is a mortgage on the house right now. Another option, and again talk to an attorney, is to put her on title and then work on her credit and in 6 months of being on title she can refinance the property into her name and the ideal credit to work towards is at least a 620 but would be best if she had a 640. Do you know why her score is only a 590?

Mar 11th 2013
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Peter Savino (855411LEND)
#101 ranked lender in New Jersey - 332 contributions

Put her on title and deed for 6 months and refi yourself off once she is qualified to be on the mortgage by herself- this will change the loan from purchase to refi- and she will not need a down payment, I can help with this type of loan and her credit issues. www. HOMEMORTGAGEXPERT.com 855 411 LEND thanks

Mar 11th 2013
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Matthew De Weese (Pacific1Lending)
#821 ranked lender in California - 55 contributions

Either have her rent it with an option to own, so she's helping your mortgage payments, and then gift the equity to her, or sell it above market value with a Realtor(R) and have her wait while repairing his credit, and then gift the down-payment. Then when she's ready, she will be able to actually search for her own home that fits his preferences and have some leverage over other buyers--and potentially qualify for even more of a home if she decides to finance. It's the perfect storm for seller's right now. Low rates have enabled buyers to afford more, and low inventory has given high demand for homes, creating bidding wars between buyers. Depending on the quality of the home, you can get multiple offers within the first week.

Mar 11th 2013
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Michael Bardy (LendingPro)
#24 ranked lender in Ohio - 72 contributions

The common theme that all lending professionals will agree to is yes, you can sell the home for below market value. The real issue at hand is your niece obtaining the approval with a 590 score.Credit repair is priority #1 in this situation. After dealing with a couple rough patches in life myself, I have become very knowledgeable in repairing credit files and improving credit scores. It may be as easy as paying down balances on open credit cards. In that case we can run a credit simulator that will tell us exactly what accounts to pay down and how much? If she has more serious delinquency (repossession, judgments and/or prior bankruptcy) a more involved, long term plan would be in order.Either way, I would be glad to assist your niece with advice as to how improve her score as without that in place, everything else is secondary.

Mar 11th 2013
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Sean Young (SeanYoung)
#2 ranked lender in Colorado - 1,112 contributions

You could do a gift of equity through FHA and with a 590 you will need to go FHA. Most lenders like scores above 600, but there are still plenty out there who will go lower that usually require a larger down payment. The gift of equity you would be giving her would be more than enough. If her score is 590, there may be other issues that need to be looked at. You should contact a local loan officer who can do FHA loans below 600. Have your niece do a full loan application and have the loan officer review the credit report. Good luck and best wishes, Sean

Mar 11th 2013
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