What are the steps for a cash purchase?

8 Replies

Hello BP Community,

I have a question regarding what the steps are for a cash purchase of a home. Let me break the deal down a little. 

I am purchasing a house that needs a complete renovation from a close family member. I will be paying all cash for the home. But the seller offered me owner financing with very little money down so its hard not to accept this. I will be planning on doing all of the rehab myself considering I have done this for many years so I will be waving the home inspection. All my purchases up till now have been financed and this will be the first cash or owner financed property I have purchased. There will be no realtor involved also. Purchase price, down payment, and loan terms have been agreed upon already.

So my question is what steps do I follow? When and how do I request title work? I am completely unaware of the steps that need to take place next. I am assuming we would sign a Purchase Agreement, then I can order a survey, then take the survey and purchase agreement to title to close?

any help would be greatly appreciated 

@Sam Collins first thing you should do is have an attorney draft the mortgage agreement and review the purchase agreement. There are specific legalities around interest and how financing is structured. (Things like 0% loans are not allowed.) Next step is contact the title company. Explain that you are buying a home without a realtor or bank and request their assistance on the closing process. Specifically tell them you want title insurance. They will handle the process of title work, settling taxes and filing mortgage paperwork. It is your option if you want a survey or appraisal, That is only required by the lender. Your purchase agreement should specify who is paying closing costs and other necessary details. 

@Joe Splitrock undefined

The purchase will be from my mother who has owned the property free and clear for the last 10 years. I am assuming there still needs to be title insurance done. She has the original copy of the deed in hand at the moment. I will be paying closing cost on the property. purchase price is going to be $30,000. I will be putting $5,000 down term length of 15 years with 1% interest. 

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Excellent comments by Joe. Also you and your attorney should read and completely understand all of the terms of the note and mortgage agreement and closing documents before closing. You don't want any surprises at the closing table or in the future. 

Call local title company 

Tell them you would like to close at their office. Do they have a purchase contract you can get via email 

As well as an Atty to draw up a mortgage 

Very straight forward and easy 

Originally posted by @Sam Collins :

@Joe Splitrockundefined

The purchase will be from my mother who has owned the property free and clear for the last 10 years. I am assuming there still needs to be title insurance done. She has the original copy of the deed in hand at the moment. I will be paying closing cost on the property. purchase price is going to be $30,000. I will be putting $5,000 down term length of 15 years with 1% interest. 

 You always want title insurance and title work needs to be done. Never assume anything. 

This would be considered a long term loan using AFR (Applicable Federal Rates), which is the minimum interest standard set by the IRS. I believe 1% would not be allowable, but I am not an expert on this. This is why the mortgage contract needs to be reviewed by an attorney to protect the seller and you.

https://apps.irs.gov/app/pickl...

Personally if I was doing the deal, I would just pay cash for a $30K purchase to eliminate having to deal with a mortgage contract, the seller and a lien on the property. I am guessing you will rehab and either sell or refinance it, so paying cash just makes it cleaner and easier down the road.

Seller financing is usually the holy grail. I would go ahead and have a contract drafted up despite this being a familial transaction. Then treat it like any other contract...it goes to the title company for title research. Determine if you're getting a survey as surveyors in most areas are running weeks to complete a survey. Notify the title company if you want their counsel to draft the deed, note and deed of trust. If not, have your own attorney do so based on the written contract. If you can't draft the contract yourself, have an agent (not necessarily recommended) or attorney draft it for you. Other than that, all the steps will be the same as any other financed transaction...in this case, it's owner financing. 

While I'm usually a fan of seller financing, but I tend to side with @Joe Splitrock in this case. The juice won't be worth the squeeze in terms of fees and time to make a seller carry of that size happen. At least in my opinion. 

The returns of your capital and time can get clobbered by fees and misc charges on these small deals. I second Joe's idea to buy it in cash, fix it up, then decide what to do.