What should we consider when buying a house from a parent?
Your parents can sell you the house for less than it’s worth, and lenders allow it. There’s no rule that a family price has to look like a deal between strangers.
The discount only helps you if the contract reads at market value with the gift recorded on it. And in Massachusetts the deed carries a tax your parents owe, and it ends the homestead protection on the house.
How Should the Family Discount Be Written?
Start with what isn’t true. You may have read that the price has to sit close to market value or the IRS will take an interest. It doesn’t. The IRS treats a below-market family sale as part sale and part gift.
What matters is the number on the contract, because a lender sizes the loan against the lower of the sales price or the appraised value. Say the house appraises at $500,000 and your parents will take $400,000. Write the contract at $400,000 and a $400,000 loan is the entire value of the house. Write it at $500,000 with the $100,000 recorded as a gift of equity, and the same loan is 80 percent of value. Same house, same family, same money.
What makes it real is paperwork, not goodwill. A conventional loan wants a signed gift letter and a settlement statement showing the gift, and nobody waives the appraisal on a purchase like this. If the house still carries a mortgage, the order changes, and the step-by-step version covers it.
One trap before you choose a program. FHA looks like the easy route when cash is short, and on a family sale it caps the loan at 85 percent of value, so 15 percent down instead of 3.5. Two exceptions put the usual financing back. You’re buying the home your parents live in, or you’ve rented it from them for six months and can show it in writing.
What Does the Deed Change in Massachusetts?
You pay less of this than you’d expect. The deeds excise runs $2.28 per $500 of the price above $100 outside Barnstable County, so $1,824 on a $400,000 sale, and your parents owe it. State law puts that tax on whoever signs the deed. Your own government charges are two flat registry fees, $155 for the deed and $205 for the mortgage.
The protection on the house is the part families miss. A deed from a parent to an adult child ends your parents’ homestead, so the new owner records a fresh declaration after closing. Massachusetts doubled the declared homestead in 2024, so that filing is worth more than it used to be. The paperwork everybody treats as a formality decides more here than the price everybody argued over at Thanksgiving.
Is It Better to Buy Now or Inherit Later?
Take the gift tax off the table first. As of October 2026 each parent can give $19,000 a year to each child without filing anything. A larger discount means a Form 709 on your parents’ return rather than a tax bill, because it counts against a $15 million lifetime exclusion.
The real cost of buying now is quieter. Nobody gets a step-up in basis while your parents are alive. Inherit the house later and its tax basis resets to what it’s worth that day. Buy it now and you take on their basis instead, which can mean a much larger taxable gain if you ever sell.
If long-term care is anywhere on the horizon, settle that before the price. MassHealth looks back five years at transfers below fair market value, a federal rule every state applies. Only the discount counts, not the sale, and some transfers are exempt. Talk to an elder law attorney before you agree on a number.
Before anybody signs, agree on four things:
- What the house appraises for
- The price, and how the discount gets documented
- Any long-term-care planning your parents should do first
- The mortgage still on the house, if there is one
Sometimes waiting serves the family better, and that’s worth hearing before the paperwork starts.