Financing advice needed

5 Replies

This may be a simple matter for many but with my limited knowledge, I can use advice from those in the know. If this is not the right forum for questions of this nature, please let me know and I'll move my question there.

My son owns a home out of state and wants to sell it and buy a replacement for about the same amount in state of his residence. He has found a property and is ready to make an offer but there are some challenges. The situation is:

His home is ready to be put in the market and will sell quickly however he does not have much money in his bank for a 20% down payment. The real estate agent is suggesting that having a pre-qualification letter from a lending institution will be helpful but I doubt such a letter can be obtained in his financial situation. I am willing to lend him full amount for cash purchase for the short term until his property sells.

What would be the best way to handle this and buy the new property without creating tax liabilities for any of us?

@Malik R. ,

If it's owner occupied, he only needs to put down 5%

It would be a 1031 exchange and for rental.

@Malik R. , Since it is a 1031 exchange he cannot take title to the new property until his old property sells unless he is doing a reverse exchange. 

You can lend him any amount you want to use for earnest money etc.  Once his old property sells the funds in the exchange account obviously can be sourced by the lender.  So that's not nearly as much of a problem as finding a way to lock up the new property but not let him take title to it before he completes the sale of his old property.  You can do this a couple of ways.

1. If you lent him a large enough down as a sizable earnest money deposit you may be able to get a closing contingent on him closing sale of his old property first.

2. If 1 doesn't work then you could lend him the full amount of purchase of the second property.  But he'll need to start a reverse exchange with his intermediary so that the property 1031 order is maintained.  The QI uses your funds and takes title to the new property and holds it for him until his old property sells.  Then he completes his exchange by purchasing the new property from the QI holding it.

Originally posted by @Malik R. :

This may be a simple matter for many but with my limited knowledge, I can use advice from those in the know. If this is not the right forum for questions of this nature, please let me know and I'll move my question there.

My son owns a home out of state and wants to sell it and buy a replacement for about the same amount in state of his residence. He has found a property and is ready to make an offer but there are some challenges. The situation is:

His home is ready to be put in the market and will sell quickly however he does not have much money in his bank for a 20% down payment. The real estate agent is suggesting that having a pre-qualification letter from a lending institution will be helpful but I doubt such a letter can be obtained in his financial situation. I am willing to lend him full amount for cash purchase for the short term until his property sells.

What would be the best way to handle this and buy the new property without creating tax liabilities for any of us?

 Your son can get preapproved contingent upon the sale of the other home. Lender just needs to be able to do middle school arithmetic.... which I'm told isn't always easy to find LOL.

Thank you all for your advice. The purchase fell through so we'll have to wait for the next opportunity.

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