Buying a house, unique situation

[kratos]

Greetings WCI forum readers:

Wanted to make an anonymous post on here. Sorry for long post in advance.

I have a slightly unique situation I was hoping to get your advice on both from a financial and a personal standpoint.

Some background info:

Me (Doc) and wife (not working currently) moved to new area. Current income is $500k and I expect it to stay that way/take a very slight dip due to market forces. Moved to a new state. Currently out of residency 3 years. Was blessed to have scholarships and parental aid and cheap instate medschool. Currently debt free. Wife was working before we moved to new state but can’t find job now. Either way, we plan on having a child soon, and we had previously planned to not have her work and raise baby. Current net worth is approx  $600k. Age 32. Currently we rent. Wife's car is almost 10yo and mine is 3 yo. I’m an IC and I max out my Solo401k + 2x backdoor Roth IRAs + put 1k/month towards 529 + put approximately $16k/month in a taxable investment account. We realize that we are extremely fortunate and blessed. We are officially looking to buy a house. We like the new job we are in and our new state.

Buying a house:

We are now looking at buying a newly built home. Saw one being built  in the process. Love the location. Cost will be about $465k but I’m sure we will want upgrades. So round up to $500k. Promised wife a new house especially with the move we made which increased my income by about 200k/yr with a better practice environment.

Wife’s father (my father in Law) is a rich guy. He offers to pay for house. Wishes to give us a 100k gift for down payment as he has for all other kids. Then pay 400k on top which we would pay him back. Told him don’t want to pay back right away but would rather pay back over 10years monthly (to invest in market) and he’s very cool with it. 0% interest rate. Pretty much the best loan you can get. I’m kind of ecstatic over the offer but a few things.

This gives me the feeling like I’m less independent? I often wonder am I doing the right thing? My wife is unfortunately biased and I didn’t want to talk to my friends in real life because of perceived notions. I wonder if In-Laws would pull at a future control type scenario. They’ve never been that way though so I doubt it. Good thing is the house would be completely paid off for in case something tragic happens to me. I have great disability and term life (thanks Larry Keller) but this is another type of insurance. FIL doesn’t need the money, and he definitely wouldn’t make wife pay it back if there was an issue. Another small scenario is that my parents aren’t well off and if they found out about this it wouldn’t look great since we are a “pull yourself up by your own bootstraps” kind of people. I’ve always heard mixing family and money isn’t a good idea.

Affording the home isn’t an issue I believe. We have about $100k on the sidelines which helps my wife feel better sleeping at night. It’s considered our emergency fund. I’m sure we could get a physician loan for the rest of the house or conventional mortgage. But 0% interest is hard to ignore. Also I’d rather use the money saved to invest in taxable account aggressively and hopefully reach FIRE in 10 years but don’t wanna look back and think that I did it because of someone else.

I was hoping to hear what you all thought of this scenario. Take the money and just pay off over 10years and invest the differences? Take nothing? Take just down payment and get a regular loan? Take money and just pay back over 2 years foregoing investing in market and probably delaying FIRE. Thank you all so much for your help.

[Craigy]

I wish he was my FIL.   

Do you like him?  Take his money.

Do you hate the guy?  Possibly still take his money.

Yeah he's going to feel like he did you a real solid.  Can you live with that?  I think I could.

I don't like owing anyone money, especially family, but in the case you describe, I think I could deal with it.

[SerrateAndDominate]

Congratulations on being debt free!

 

This is indeed a unique situation.  The closest (albeit far) comparison I can make is my wife's dad wanted to buy us a new vehicle since hers was older.  Given my wife's commute, it has come in handy, but I personally wanted for us to do it all on our own.  Her dad was fairly insistent because he spent more on the other kid's school and wedding.  In a way, she was a lot cheaper than her brother, but the similarity is that my background was from more modest means.

 

In case you haven't, I would definitely express these unanswered questions to your wife.  Obviously, it is quite a generous gift for which you are very grateful, but you have a particular mindset about doing things on your own.  I obviously don't know your father in law, but I would imagine if you explained to him that you are super grateful but would rather earn this on your own, he would respect that.

[Peds]

You could also ask them to gift you yearly instead. That's 60K/yr. Then if something goes wrong they can stop.

[CordMcNally]

Tough call. Gifts are great and easy but loans (even at 0% interest) amongst family is where I start drawing the lines. You seem to know your father-in-law well. Is he the type of guy that owing money to would become a problem? Are you and your wife the type of people who will let others dictate (whom you owe money to) their lives if you feel like you owe them something (...money)?

 

If all else fails, you can tell him that you just don't feel comfortable owing family anything. Maybe he'd gift it to you at that point...

[Dreamgiver]

When somebody is so generous, they genuinely take pleasure out of helping other people or family members. Make the man happy.

[portlandia]

I would take the downpayment gift as that is what has been done for the other children and politely decline the loan.

Your FIL sounds like a tremendously generous individual, but the risk of fractured family relationships is not worth the slight financial gain of a 0% interest rate loan.

YMMV

 

[Kamban]

Hate to be a Debbie downer but things can go wrong in any marriage. No one expects it or wants it but it can. So it is better to keep things clean and no have any outside influence.

I would let him gift the $100K to your wife and use that as downpayment. If he wants he can make additional gifts every year to his daughter ( the amount you would have spent in interest on the house) and that can be added to the house payments. Maybe leave her a good chunk in his estate plan.

But I would not take the additional $400K

 

[startupdoc]

You make 500k a year, debt free, have all your other financial facets in order, about to accept a 100k gift, and still on top of that want to take an interest free loan of 400k? You should easily be able to afford a 1 million dollar+ house and you are trying to figure out how not to pay for a 500k house. At some point, I would recommend that you take full responsibility for your own financial life and stop relying on others generosity. I understand that he is rich but, I don’t think I would accept that amount of money knowing full well that I can absolutely and very easily afford it myself.

You are already extremely fortunate financially. You don’t need your FILs help one bit. My two cents.

[Zaphod]

portlandia wrote:

I would take the downpayment gift as that is what has been done for the other children and politely decline the loan.

Your FIL sounds like a tremendously generous individual, but the risk of fractured family relationships is not worth the slight financial gain of a 0% interest rate loan.

YMMV

 

Click to expand...

startupdoc wrote:

You make 500k a year, debt free, have all your other financial facets in order, about to accept a 100k gift, and still on top of that want to take an interest free loan of 400k? You should easily be able to afford a 1 million dollar+ house and you are trying to figure out how not to pay for a 500k house. At some point, I would recommend that you take full responsibility for your own financial life and stop relying on others generosity. I understand that he is rich but, I don’t think I would accept that amount of money knowing full well that I can absolutely and very easily afford it myself.

You are already extremely fortunate financially. You don’t need your FILs help one bit. My two cents.

Click to expand...

It is not even in the ball park of "slight". Thats an understatement of the highest proportions.

If he wants to do this for his daughter, let him. Big deal. In the end. He makes enough money to pay it off very easily if anything were to go wrong. If one wanted to be super conservative you could build up a side fund of non risky investments to cover it. Seems to already have it covered in net worth.

Yes, things can go wrong, but you have leeway here with reasonable price, income cetc...

[Rando]

This really is more of a relationships and values question than it is a financial question.

 

From a financial standpoint you make more than enough to buy this house on your own.  Also from a purely financial standpoint it's better to have somebody else pay for stuff, that's kind of a no-brainer.

 

The complexity comes when you factor in how this will possibly effect your relationships with your wife and father-in-law, as well as your feelings about yourself.  No one will know that better than you.

[Donnie]

Zaphod wrote:

portlandia wrote:

I would take the downpayment gift as that is what has been done for the other children and politely decline the loan.

Your FIL sounds like a tremendously generous individual, but the risk of fractured family relationships is not worth the slight financial gain of a 0% interest rate loan.

YMMV

 

Click to expand…

startupdoc wrote:

You make 500k a year, debt free, have all your other financial facets in order, about to accept a 100k gift, and still on top of that want to take an interest free loan of 400k? You should easily be able to afford a 1 million dollar+ house and you are trying to figure out how not to pay for a 500k house. At some point, I would recommend that you take full responsibility for your own financial life and stop relying on others generosity. I understand that he is rich but, I don’t think I would accept that amount of money knowing full well that I can absolutely and very easily afford it myself.

You are already extremely fortunate financially. You don’t need your FILs help one bit. My two cents.

Click to expand…

It is not even in the ball park of “slight”. Thats an understatement of the highest proportions.

If he wants to do this for his daughter, let him. Big deal. In the end. He makes enough money to pay it off very easily if anything were to go wrong. If one wanted to be super conservative you could build up a side fund of non risky investments to cover it. Seems to already have it covered in net worth.

Yes, things can go wrong, but you have leeway here with reasonable price, income cetc…

Click to expand...

I would say that it is closer to "slight" than an "understatement of the highest proportions."  Let's say OP can get a 4% loan for the $400k.  He is saving $16k in the first year borrowing from his FIL (less if OP itemizes).  $16k is the same amount that OP is putting into taxable alone each month.  If OP pays down traditional mortgage in 10 years, OP will pay about $90k in interest, or on average $9k a year.  Clearly this 0% loan is going to have a relatively modest impact on his overall financial trajectory compared to his overall savings rate.

Anyway, if the guy wants to give you a 0% loan, I guess it's fine to take it.  I probably wouldn't, but to each his own.

 

[q-school]

I think there are some legal issues with 0 percent loans


However, I’m sure there are ways around it. I’m an old fart so I look at it differently. You are going to inherit the money anyways. He can afford it. I say take it with clear conscience.

You really shouldn’t even pay him back from an estate purpose. Better to pay it forward. I’m doing same for my kids. They will have better vacations (with me) than they can afford. I will help with down payment (and live in their basement).
See? No such thing as a free lunch.

[Humilem]

Separate your finances from your FIL's. Stick to the values your parents thought you. You and your wife are in a very good place financially and your career is taking off. Your very generous FIL should gift her daughter (your wife) the 100k just as he did his other children, no more. As an aside, why are you driving a newer car than your wife? That couldn't have made your FIL happy seeing her daughter driving an older car than her husband's. That's just my old school point of view. Good luck with your choice.

[Malocclusion]

0% interest loan may not fly with the IRS. You should ask your CPA about this.