I believe the letter and photo helped niece get her house. She and her H bid lower than some of the other offers but are adorable with their little toddler. They also offered to allow owner to continue living in studio portion of property for 6 months with NO rent as a condition of the purchase.
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Come to the Midwest where homes are much more reasonable. Although I will say inventory is small at the moment.
Has anyone ever become the bank for a child or grandchild’s home purchase? I saw one earlier post but may have missed others. Aside from potential relationship issues, it seems both parties might benefit economically in the current market. The lender could get a “guaranteed” +/- 5% return (less after taxes), and the borrower a significantly lower rate than now offered (as determined by the IRS Applicable Federal Rate).
In more expensive markets, is it possible to lend part of the cost of the house at the lower rate, to reduce the overall interest amount to something more manageable? How is this factored into a mortgage company’s loan? Will that make their interest rate even higher?
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I had a friend from college who used her parents for a mortgage. I never heard of any problems.
I have a friend now who holds the mortgage (or however you describe it) for her daughter’s home. Again, no problems.
Yes, we did that with our son. We financed the mortgage at the lowest acceptable IRS rate. Our son’s income is irregular as he does contract work, although he could easily afford the mortgage, but he would have had difficulty qualifying for a traditional mortgage.
When he bought his house, the interest rates were very low (2.5% for a 30 year mortgage) he put 10% down and we financed the rest. He is the owner and we are the “bank”. he pays his insurance and property taxes directly and pays the mortgage principal and interest to us monthly. It’s nice getting that check each month! We report the interest every year on our tax return-he could deduct it, but takes the standard deduction. It’s a win-win.
I recognize there are emotional considerations in serving as a child’s banker—would we foreclose if he failed to pay his rent or property taxes? In this case we have a great relationship and he is very responsible with money, so we were willing to take that risk. If he was unable to pay through no fault of his own such as illness or job loss, we would gift him the money until he was able to restart payments.
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We have done it for one of our children. The title company drew up the mortgage papers and filed them with the county. We structured it as an interest only loan with a rate just a smidge above the AFR. Our attorney advised we add the small amount to make sure we stayed clearly out of a gifting situation. Because it was an interest only mortgage, it was very easy for me to keep accurate records so the interest could be declared on our tax return. I know there are companies that will manage the mortgage for you and that may make sense if it’s a loan with principal amortization or if you want the payments reported to the credit reporting agencies to boost the borrowers credit score.
We haven’t done a partial loan but have talked to our attorney about that option. He said it wouldn’t affect our child’s ability to get a traditional mortgage for the balance as long as our loan was unsecured.
We did this in my family at one point. We used this organization https://www.nationalfamilymortgage.com/ which makes everything “official.”
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@aquapt : I’d love to ask more about this experience. If you prefer, please send a PM . Initial questions:
- How smooth was the process with National Family Mortgage? (Their website appears comprehensive which is a good sign).
- How long did it take?
- What other advisors are needed (lawyer, appraiser, etc.)?
Thanks!
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It was very smooth on the setup end. The family loan was a refinance, paying off a bank loan on a property we already owned, so there wasn’t any new-purchase stuff to deal with. The NFM people were super-helpful and made everything very easy. I don’t remember it taking more than a week or two. The documentation they provide made everything easy tax-wise.
When the lender family member passed away and the loan needed to be dismantled, it was a little less smooth, but still worked out fine in the end.
Feel free to PM me if you like. This was all set up 15 years ago or so, though, so I can’t speak to whether anything has changed since then.
Thanks! (I tried to PM, but since the profile is hidden, it won’t allow that).
Appreciated!