Purchasing a home from a family member

[Brett Hannon]

Hey BP! 

    I am looking to purchase a house I have been renting/house hacking from a family member.  The house was in very rough shape so I renovated it prior to moving in seven years ago.  Through the last seven years I have significantly increased the value of the home by adding a small addition, 400 sq. ft. cedar deck, large garage etc.. 

  I have a verbal agreement to purchase the property for $140,000 and estimate the conservative current market value to be around $240,000.   My question to BP is can I use the equity in the house to reduce/eliminate the down payment for the mortgage?  The seller is willing to assist me in any way.  Also, what is the most cost effective way to transfer the property.  

Thanks in advance

[Austin Hughes]

Here's how you use the equity to eliminate the down payment... The issue is whether you want to hold onto it (#1) or flip it (#2)

1. Seller Carry Back on a Commercial Loan-- You borrow 80% from the bank and seller pays for 20% down payment in a second lien. First pay back bank, then pay back seller. You'd have closing costs $2K-$4K depending on area.

OR

2. Get it written in a contract with a long closing date & the ability to market the property as part of the contract...then record your option at the courthouse and start marketing it to a retail buyer!!! Just do a double closing, and you will make $100K. No cash out of pocket needed.

If it were me, it would be a no brainer... flip that bad boy and put a down payment on 2-5 other rental properties.