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.
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We did this in my family at one point. We used this organization https://www.nationalfamilymortgage.com/ which makes everything “official.”
deleted for privacy reasons
@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!
Slightly off topic. If a couple with vastly different income are buying a house together, how should they split the cost? One with low income pay the down payment from savings and the other take on the mortgage? Would that make it equitable?
Are they married? If so, I would think they should figure it out themselves.
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I made more than dh when we married and up until I quit my job. When we were renting when first married, we split the expenses 50/50 and then saved 10% of each of our salaries. Obviously, I was saving more as a number, but we were each saving the same percentage so had the same skin in the game. I made more but not VASTLY more, which is what this sounds like.
If this couple is married, then I think that they are a unit and should be rowing in the same direction without getting nitpicky about who paid for what. For instance, I always have been a great saver so, truthfully, most of the down payment came from me, but that was OK.
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Delete. I guess I don’t understand what the question is.
But if I wasn’t married and I was depleting my accounts to buy a house with a partner, I’d want an agreement in writing.
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I made twice what my husband made when we were married. We purchased a house 2 years later based on our combined income as far as the mortgage loan we could qualify for and the purchase price. Not sure why higher or lower income is relevant unless one person may stop working (stay home with a baby) or negative change in income is anticipated in the near future (leaving the work force to go back for a degree)?
That is my thinking. By making down payment, the lower earner has skin in the game. Nobody is being contentious. We are just hashing out how to best approach the income difference. The disparity is 1 to 4. 4 doesn’t mind taking on the whole thing but 1 would like to be an equal partner in some way.
I changed my post while you were posting. Sorry about that.
I would want an agreement in writing.
Protect both parties, I guess akin to a prenup. If married, that could change things.
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These two folks need a legal agreement stating the percentage of ownership (in the event the property is sold to get their share of proceeds or money owed, if underwater). If they are married in a community property state and don’t have a prenup, they also need to sort out this because by default, a house purchased with community property money will be community property and will be 50/50 owned. Consult an attorney!
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If 1 puts down 20% payment at the beginning, it is a lump sum and more valuable than paying mortgage piecemeal. If the lump sum double in 10 years as they say, in a way 1 paid 40% of the house. Would that make 1 feel more or less equal partner?