Buying a house for less than its worth

[Deedles]

Hello,
I need some advice and information on buying our first house which we have are also currently living in and have so for the last 8 years.
My MIL owns the house and we have done a lot of work to fix the place up.
We have 3 children and have made our life in the area we live and DS has just started school and DS2 will be there next year also. So we really REALLY want to stay here.
Rent is about $500 - $700 in this area for a decent enough house for 2 Adults and 3 children, so renting is very Exy.

My MIL would like to sell the house to us as this is her second house and just a retirement investment. She would be happy to sell it to us for around $300,000 cheaper than it has been valued for!

I was just wondering if anyone had any info on buying a house for a large amount cheaper than is valued. Would you still need the 5% deposit? Can you get a mortgage a bit easier if they know you can make back the money plus more?

I honestly know NOTHING of buying or selling houses and need a book for dummies on this subject.

Any advice welcome and much appreciated.
TIA

[black_rose]

The bank will look at what the house is worth and say you can borrow x amount normally about 80% of the value. You would need to confirm with a lender or broker that it still works that way with less than the value, because it's the house you intend to live in you can't normally borrow more than 80% unless you are entitled to any grants.

[nickle730]

The bank will look firstly at your income to determine how much you can afford to repay on your mortgage. They will then inspect the home you want to buy and determine whether the value of the home is more than what you would owe them. The bank hold the title to the house until such time as you discharge (pay out) your mortgage and they need to ensure that if you should default on your mortgage they can recoup their money by the sale of the house. If you are purchasing the house for $300K less than market value, you will not need a 5% deposit as you will already have equity in the home. It would help if you have evidence of your past rent history to show how much you pay and that you pay reliably - do you use an agent or just have a private arrangement? Banks aren't handing out money quite as easily as they did a few years ago - there are new Responsible Lending guidelines - but as long as you can afford to repay the loan without financial hardship you shouldn't have any issue getting a mortgage.

[chody47]

because it's the house you intend to live in you can't normally borrow more than 80% unless you are entitled to any grants.

You can borrow more than 80%. By borrowing over 80% you have to pay mortgage insurance though.

[briggsy's girl]

Probably worth getting some professional advice - both you guys and your MIL. There are implications for MIL if she sells property for less than market value for quite a few years (thinking of an unexpected change in circumstances that may require government financial support) so ahe needs to be completely aware of not only how the sale could impact now, but also for aeveral years down the track. Once a contract of sale has been actioned, there would be no financial implication if this for you guys, but given she is your mother in law there would potentially be emotional strain if MIl is impacted later... It sounds like she has decided to give your DH an inheritance of sorts blowhole she is still alive (the equity in the house) - there may also be implications of there are other siblings (again, not so much now, but in the future), which could impact you and dH when things are toughest (after losing his mum) so this is something else to consider - does her will need to altered to state that he gets a smaller share of "stuff" after her death due to this situation. If it's sill left equal shares and she hasn't done similar for other siblings, her will may be contested and that leaves you grieving and facing a court battle with sibiings...

As for you and DH - make a general enquiry at one if the banks. You don't have to sign anything. But they are going to be the best people to tell you what can/will/won't happen with finance, and what their expectations are of you. When you are thinking about purchasing, don't forget to factor in not only mortgage payments, but also rates, house insurance, maintenance expenses etc... Good luck!

[AnyDream]

I Second recommendations to seek advice. There may be capital gains tax or other financial implications for MIL:
http://www.ato.gov.au/General/Capita...riends/?page=3

Which is fine provided she and you all understand what they are in advance. Good luck with this, what a massively fantastic gift that would be to you.

[Deedles]

Well MIL has told us that she would have to pay a large amount of tax to sell the house and if she sells to us then she wont have to pay it or pay such a high rate.

My SIL is living in her other house, down near Byron Bay and that house she wont sell. She will probably let her daughter stay in that house as she wants to build another ECO friendly house on a block of land in the same area.
She also owns a house in Italy. So I don't see her having any financial difficulty or a place to live!
My SIL said we would be crazy not to buy it and she would snap it up if we didnt!
We are still paying a lot more than she originally paid for it!

Also MIL isn't an Australian citizen so I am not sure if she would get help from the government if she needed it.

Thank you for all your advice and info. We are starting our journey with Financial advisors then heading on to banks and our family friend who is a lawyer to work out all that info briggsy's girl!

[No.5]

Sounds like an amazing opportunity very exciting! Good luck, hope it all works out