How can I buy my dad’s $800k house with only a small down payment?

Question

I have an interesting situation. My dad owns a property in a desirable area outright. It's a 4 bed 2 bath main house with a detached 2 bed 1 bath cottage on about .2 acres in a nice suburb. It's appraised at about $800k - he bought it for less than $200k over 20 years ago. He's thinking of selling in the next few years and I would absolutely love to own it. Problem is, I cannot afford that expensive of a house. I have about $30-40k saved up for a down payment and figure by the time he wants to sell that will be closer to $75k - still not enough for that property.

The property would make an excellent rental property with the ability to split the main house into 2 or 3 units and rent the cottage separately. It's also a great property for a primary residence. Either option excites me.

What creative strategies can we employ to transfer ownership of the property to his son? He would likely want to buy something else or rent a condo in his retirement years, so he'll need some liquidity. He may be open to retaining the cottage for visits, but I'd want to rent either the cottage or house and live in the other. I know there must be a bunch of creative solutions here, especially since he is my father. Any help is appreciated, thanks!

Drew Sygit · Answer

Do a land contract NOW!

After 12+ months you will be able to refinance and the lender will recognize the value over & above whatever the purchase price is/was.

EXAMPLE:

You buy for $800k today.

Put down $30k

Balance owed $770k

You refinance 2 years from now to pay your dad off.

Future value $880k (5% annually)

The lender will recognize the $880k value and the extra $80k in appreciation.

So, you would be looking at a refinance LTV (loan-to-value) of $770k/$880k = 87.5%

NOTE: not recognizing any principal paydown from your monthly payments, which will be almost negligible anyways.

This would still require PMI, so not a great refi opportunity.

You could discuss with your dad to:

- Gift you equity- Allow more than 2 years until you have 20% equity to refi w/o PMI

A bigger question - how much of a monthly payment can you actually afford?

Bryce Jamison · Answer

He could owner finance it to you. Essentially, he becomes the bank where you can set your own rate and term. You could put whatever down so he has a large sum of money now, but then he'd continue to receive monthly payments.

You could also do a lease with an option to buy. You basically rent it from him, presumably at less than you could make from renting it, and have the option to buy at a defined price at a defined time in the future.

He could also sell it to you at a price you can afford and you both come up with a way to make up the difference, or put the property in a trust or LLC and give you possession of that entity. Make sure to talk to a tax professional if he goes the legal entity route though.

Honestly though, If I was talking to him I'd tell him to list it on the open market and get as much as he can from it if he needs money. He'll make more and you won't risk damaging your relationship over money misunderstandings.

Henry Clark · Answer

OP

Your father will want a relaxing life.  Owner finance is out of the picture.Have you run the numbers?  What do you make per year take home?  Can you afford $6k per month?.

Let the numbers move you to a solution.

Mike Grudzien · Answer

Bryce is spot on!

Bill B. · Answer

I’m going to assume this is your dad’s primary home. Since you said dad and not parents. He gets to ignore the first $250k in gains, but he’s still going to owe $50k in federal taxes plus another $20k? To the state. Hard for him to do owner financing, pay that $70k and afford to buy a new place to live.

Don’t forget property taxes might double or triple depending on how your county handles them. If you wouldn’t buy this property if your dad didn’t own it, you shouldn’t buy it. If you would, but a comparable property and let your dad retire. Don’t F up a family relationship by involving large sums of money. Good luck.

Theresa Harris · Answer

If you are planning on living there, you should be able to buy it for 5% down.  Question is would you get approved for a $795K mortgage and could you make the mortgage payments?  If you are going to move there, how much would you make after selling your current home?

What are his plans longer term?  Does he need the money to buy a new place?  If not, would he be willing to go 50:50 with you on the property (assuming you have no siblings who are also interested in buying it).  Then you only need to come up with half of the money.

James Driscoll · Answer

Derek, this is actually a really well-positioned deal if you structure it right from the start — the family ownership and clean title give you flexibility most buyers don't have.

Here's the framework I'd think through:

**1. Gift of Equity as Your Down Payment**

Because your dad owns it free and clear, he can "gift" you equity instead of cash. On a conventional loan, the gift of equity counts toward your down payment and closing costs. If he gifts you, say, 20–25% of the purchase price in equity, you may be able to avoid PMI entirely and finance the rest conventionally — even with your $30–75K in savings covering reserves and closing costs.

**2. Seller Financing as an Alternative or Supplement**

Your dad could also carry a second mortgage (or even a full seller-financed note) at terms you both agree on. This keeps the deal flexible and avoids some conventional loan constraints — especially useful if you're planning immediate conversion to rentals, which can complicate owner-occupant financing.

**3. The Conversion Strategy Matters for the Loan Type**

If you're planning to convert to 2–3 units, lenders will look at this very differently depending on whether you intend to occupy one unit. A 2–4 unit owner-occupied property qualifies for FHA or conventional financing with much lower down payment requirements, and future rental income from the other units can often be counted toward qualification. If it's purely investment from day one, you're looking at investment property pricing and typically 20–25% down — which is where the gift of equity strategy becomes critical.

In 31 years in the mortgage business, I've seen family transfers like this go smoothly or sideways depending almost entirely on how the purchase contract and appraisal are handled up front. Getting the structure right before you sign anything is the key move here.

Hope this helps — feel free to DM me if you want to walk through the numbers on any of these structures.

Jim Driscoll

Jonathan Lee · Answer

Hi Derek, you can potentially put down 3% as a conventional primary purchase as long as you're a FTHB and can qualify for the mortgage.

Feel free to reach out to discuss further.

Vontay Callahan · Answer

Derek, you’re in a great position here because family‑to‑family transfers open up options that most buyers don’t have. A few things you mentioned line up perfectly with creative financing strategies that can make this work without needing a massive down payment.

Since your dad owns the property free and clear , you two have flexibility on structure. Owner financing is one route, but you can also combine it with a small down payment and terms that keep his monthly income steady while giving you time to stabilize the property as a rental. The fact that it has a rentable cottage and potential for multiple units in the main house only strengthens the numbers Current page.

You also mentioned he’ll need some liquidity for retirement  — that’s where hybrid structures can help. For example:
• Small down payment now
• Monthly payments structured to match his retirement needs
• Balloon or refinance later once you’ve improved the property’s income

Happy to walk you through the numbers or talk through a few structures that would keep it fair for both sides and protect the relationship. If you want, DM me and I can help you map out the cleanest path forward.

Nathan Jensen · Answer

I’ve actually structured quite a few family purchase deals where the buyer brought little to no money out of pocket by using a gift of equity from the family member along with the seller covering closing costs.

A lot of people dont realize family transactions can sometimes be structured very differently then a normal purchase depending on the equity position in the property. If there’s enough equity, part of that value can potentially be used toward the down payment requirement instead of the buyer needing to bring all the cash themselves.

The biggest thing is making sure the numbers, appraisal, and loan structure all line up correctly from the beginning because these can actually be some of the smoother transactions when everybody is on the same page upfront.

How can I buy my dad’s $800k house with only a small down payment?

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