Do you have any thoughts or recommendations for dealing with intra-family mortgages? I’m up for an academic job at a relatively stable school in a part of the country where I could afford to borrow the entire cost of a (very modest) house from my parents. My parents have offered to the possibility of doing an intrafamily mortgage so I don’t have to worry about as big of a down payment (probably what would happen is I wouldn’t do any down payment, but would use some of the money I would have spent on the down payment on renovations, furnishings that I don’t really have right now, etc.). I know it has to be registered and that there’s the minimum interest rate required in order for it to be taxes as a mortgage, but are there any other benefits or pitfalls that I should be aware of if we go this route?
I’ve got the 20% for a downpayment, but was planning on putting off any renovation until I had more cash. My parents were the ones saying that instead of delaying renovations till I have the additional money saved up I should just do it all at once before I actually move in.
If you don’t have a 20% downpayment, don’t buy a house. Period. Don’t borrow for furnishings. Include the cost of renovations in the cost of the house when you’re doing your budgeting (meaning you need more money rather than less money to get 20% down).
It’s very nice of them to offer, but I’ve been seeing so many people (online mostly) with really good incomes hurt by not doing the recommended thing when it comes to housebuying and renovating. What happens is they get crunched on cashflow from the monthly cost of the mortgage added to the unexpected additional costs of homeownership, which means they can’t live on >100K in, say, Indianapolis or on 175K in San Francisco.
There are definitely benefits to doing renovations right when you move in (see: living with carpet in the kids’ bathroom for 10 years), but that would argue for putting off buying until you can afford them rather than having too much debt servicing during home-ownership. Because home ownership really does bring in a lot of additional required spending over renting that people just don’t expect. A little more hassle from renovating later (if you buy) is better than having to worry about your cashflow on a regular basis, just in terms of stress levels.
Also, as Rosa notes: “there are also downsides to doing all the renovations up front. You might not like them as much, since you haven’t actually lived with the space to see the real deficiencies. You will probably still need to redo them in 10 or 15 years. And you may find other priorities that you didn’t see before you moved in, but have already spent your reno budget.”