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Can I buy my grandmother's house without a mortgage?

I am looking into buying my grandmother's house, which she owns outright, as she is planning to move into a bungalow. I have been lead to believe that it is possible to construct a strict mortgage repayment agreement whereby my grandmother would act as the bank meaning I would have to pay interest on top of the repayments, but I was wondering if it would be possible to pay off the house in an ad hoc manner depending on how much money I could spare each month until the house valuation is met, with my grandmothers agreement of course. Also would my grandmother be the legal owner of the property up until the point when I make the final payment? I am assuming my grandmother would have to sell me the property at the current market value to avoid any inheritance tax complications, is that right? I am not looking to rip off my grandmother, I am just wanting to know where we both stand legally in this situation.

Public Comments

1. Yes, this is possible. The contract would need to be drawn up by a solicitor. Your grandmother will have to pay tax on the interest. Personally, I do not think that this is a good idea as you already seem to be open to the idea of not paying her on a regular basis. Also, how will she afford to buy the new bungalow? She will effectively have money tied up in the new place and in the loan to you.
2. In your example your grandmother would be a mortgagee (lender) and you would be a mortgagor. The home is security for the payment of the promissory note. Most mortgages permit pre-payment (in whole or part) at anytime and as long as that's written in the mortgage you wouldn't have any problem with your ad hoc payments. realtor.sailor
3. This is an example of owner financing. Local laws in your state will govern how the ownership and financing rules go. In a typical mortgage, the buyer is the owner, but the lender has the right to reposses and foreclose if the terms of the loan are not adhered to. In your case, you can negotiate with your grandmother all terms of the loan, the most important being: 1. interest rate, 2. term, 3. escrow for taxes and insurance, 4. early payment fees, if any. The interest rate usually depends on credit score, a good credit score should get a 4.5 - 5% rate of interest. Term is usually 15 or 30 years, mortgage company usually keeps the escrow, and there is generally no prepayment penalty.