A house sale between friends or family members is likely going to be a relatively informal affair. You're probably going to want to enlist an agent or a lawyer to make sure that you've crossed all your t's and dotted all your i's. But part of the reason you're selling to, or buying from, a friend is to save yourself some red tape and headaches.
Even so, there’s still some paperwork to be filed. Here's what you need to keep in mind where home insurance is involved:
- You're going to need an inspector. Your home insurance company needs to know what their risks are. If there are any leaks or necessary repairs, they need to know what those are before they cover the home.
- You might not want to buy the home through a mortgage, but it could be easier that way. A letter of pre-approval can save you and your insurer a lot of hassle. If the sale is being made in cash, the seller can have an attorney verify the funds to make sure everything is sorted.
- You'll need to have the home appraised. The seller may want to cut their friend or family member a deal at "friend prices." But both parties — and your insurer — need to know how the home is valued on the market. Note that selling too far below market value will draw the attention of the IRS. Even if you're just trying to be nice, selling a home for several thousand dollars less than it's worth looks a lot like money laundering to the authorities.
Once you have all this sorted, buying home insurance is simple. But it's important that you do have this sorted out. You want to cut through the red tape, sure, but sometimes that red tape is there for your benefit.
One of the benefits of selling to a friend or family member is that there are far fewer hoops to jump through. But we don't advise a completely informal sale. Without going through the proper channels, an informal house sale can create a lot of financial troubles for both parties. And it can even ruin a friendship. If you can afford to buy a home from your friend, uncle or cousin, you can afford a little extra to cover closing costs.
Also Read:Do You Owe Taxes on Reimbursements for a Home Insurance Claim