We found a home we would like to purchase (U.S.). It was the 2nd day on the market and there were already two other offers for it, so we decided to make a cash offer ($230K) as my dad agreed to pay for it while we figure out the financing.
Our offer was accepted and we are closing in 3 1/2 weeks, and so now I'm trying to figure out the best route for the financing.
More background: We own our first house, worth $120K-$140K, outright. but plan to rent it out rather than sell it. We have little money in cash for a down-payment. We have good credit.
Here are the potential options I'm considering at the moment:
Option 1: Sign the home over in his name. Make payments to him until we can figure out the mortgage, at which time we'll give him the remainder of the amount and buy the house from him. With this option, I'm worried about the double fees we'll pay for the two different sales, but don't know what those might be.
Option 2: Sign the home over in our name and take out a home equity loan. I checked with a local bank, and the policy was
no home equity loans until 6 months after you buy the property*, plus another 1/8% on the interest rate. I'm not sure if this is common or just their policy, but I'd rather not make my dad wait that long before paying him back.
Option 3: ???
Any advice would be greatly appreciated!
After looking at the possibilities and seeing the complexities and potential extra costs that having my dad pay with cash will bring, we decided to pursue a conventional mortgage in time for the closing. My dad will gift me the 20% down-payment and we will pay him back on a regular repayment schedule. The bank has approved the loan and says they will be able to get it done in time as the home has already passed inspection and only needs the appraisal.
The final question is whether the sellers will accept this amendment. I proposed that this should not introduce additional contingencies, as we could fall back to paying with cash if the financing fell through for some reason. This made sense to my realtor and the selling realtor, so hopefully it will make sense to the sellers as well and they'll accept the amendment.
*You can avoid the 6 months refinance delay after purchase if you document when you close that the source of the funds was not yourself, plus some other requirements. See section 24.6 of the Freddie Mac guide for complete details.