Buying your parent's house is often better than getting it as a gift. It puts money in your parent's pocket, and if you buy it for fair market value, she won't have to pay gift tax on the deal. There are several ways to arrange the sale, depending in part on whether your parent is moving on or staying around.
Take Out a Mortgage
If you take out a mortgage to buy the house, it works like any other home purchase. It doesn't matter that it's your parent's house: The bank still expects you to pay for a title search and title insurance. The bank also requires a home appraisal to prove the home is worth the mortgage you take out. It's still a good deal for your parent because she won't need to advertise or employ a real estate agent to make the sale.
Use Seller Financing
If credit problems or other obstacles prevent you getting a mortgage, seller financing offers an alternative. Instead of taking out a loan with the bank, you give your parent the down payment and then regular monthly mortgage payments. This can save you thousands of dollars in closing costs. The house will probably need to be mortgage-free for this to work, though -- and your parent might prefer to get the money all at once rather than over several years. Even with family, seller financing needs a written agreement to protect everyone involved.
Buy It As an Investment
If your parent can't keep up the property but isn't ready to move, consider buying the house, then renting it back to her. This has financial advantages for you -- the rent payments will help cover your mortgage payments -- and advantages for her if you can offer her a lower rent than a landlord would charge. If the rent is close to market value for the neighborhood, you can treat the house as an investment and deduct the cost of repairs, mowing the lawn and other expenses from your rental income.
Use a Life Estate
Buying and renting back has its risks. If you die, for example, your estate may have to sell the house or whoever inherits it might demand more rent. Selling you the house with a life estate protects your parent by guaranteeing she can stay there until she dies, no matter who owns the house after you. With a life estate, your parent remains responsible for taxes, insurance and maintenance costs on the property.
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