Investor · Member since 2022 · 16 posts · 11 votes
I'm debating whether to purchase my mother's home through a private mortgage as a way to start house hacking but want to make sure I am able to build equity in a way that will allow me to use it to purchase a second property. My mom's house is paid off and she's willing to give me a great interest rate of about 2%. My husband and I would move into the main house and my mom will move into the basement apartment. She'll pay below market value for rent in NYC, but it will still help lower our monthly costs. We still have to get the house appraised and discuss purchase price, but wanted to know if this is something I should even entertain or just continue to save up for a down payment on a single family property in a more landlord friendly state without house hacking?
Lender · CA TX AZ MA · Member since 2022 · 42 posts · 30 votes
4y
Hi Lauren - I want to add that 2% is a great rate too - over 3% below market - so that should allow you to build equity even faster. In addition, by getting a loan from your Mom you are avoiding lender fees as well. And finally, your Mom is avoiding real estate commissions by selling to you, so you might negotiate a discount in light of that (making the deal you are getting even better). It sounds like a win/win for both you and your Mom though.
Lender · Macon, GA · Member since 2015 · 191 posts · 59 votes
4y
If not the same way, very similar. You're mom would be in the same position as any lender if she held the 1st position mortgage note on the property. If you close through a title company or real estate attorney, you and your mom's position should be secured, that way your equity in the property should the same.
Now if the paperwork isn't where it should be and it could be a potential mess as to who's entitled to whatever equity in the property.
Lender · CA TX AZ MA · Member since 2022 · 42 posts · 30 votes
4y
Hi Lauren - I want to add that 2% is a great rate too - over 3% below market - so that should allow you to build equity even faster. In addition, by getting a loan from your Mom you are avoiding lender fees as well. And finally, your Mom is avoiding real estate commissions by selling to you, so you might negotiate a discount in light of that (making the deal you are getting even better). It sounds like a win/win for both you and your Mom though.
Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
4y
Hey @Lauren Mattina - I'm a realtor & investor based out in NYC.
On paper this makes a lot of sense, but I'd like to point out that your relationship dynamic with your mother will change after this (regardless of how close you are).
A private mortgage is a great way to get a rate under market, I recommend using your attorney & title company to ensure everything is recorded accurately. You may want to consider getting a traditional mortgage & 'refinance' out of your mother's mortgage after you've built enough equity into home.
P.S. Make sure it's an actual private mortgage and not a land contract.
What would be the benefit of transitioning to a traditional mortgage after building equity?
If you're asking from the perspective of 'why traditional mortgage and not private mortgage':
Besides the traditional mortgage being reported to credit bureaus, you'll avoid any resentment/conflicts between your mother and both you & your husband. I've witnessed situations where private family mortgages have caused a lot of tension with my clients, and therefore I strongly advise against it as a permanent solution.
If you're asking from the perspective of 'why wait to build equity and not just do it right away?':
Traditional banks will want to see around 20%+ equity in the home before they consider 'refinancing' your file.
It's my $0.02, I've seen this situation play out multiple times, good luck and feel free to DM me if you want to chat further thanks.
Investor · Member since 2022 · 16 posts · 11 votes
4y
I appreciate your insight, there is a lot to consider here which is why I'm so torn on it. I'll continue to mull this over and reach out if other questions come up. Thank you again for your time on this.