Tuesday, October 7, 2014

Need a Middleman for a Parent-to-Child Home Loan?

Longtime readers of this blog will remember Circle Lending, which took care of the
paperwork for private loans, and Virgin Lending, which bought Circle Lending just
before the crisis, and then folded shortly thereafter.

Looks like National Family Mortgage has gotten organized to fill the void, per Kathleen
Pender's Chron story in July.  They charge $725 to originate the loan (set up, record
and handle 1099 forms at the end of the year), and then there's a separate $15/mo
servicing charge (to cover sending out monthly mortgage payment bills, letting you
know if a payment issue comes up), which can be paid by the lender or borrower, 
at your direction.

Note that if you were to "gift" funds to a relative, you are liable for gift taxes.
 The IRS has a "Applicable Federal Rate" which is a safe-harbor rate that avoids
 any liability.  It's currently just over 3% for a long-term loan.  So while market
rates are closer to 4.375% for a 30-year loan, you could lend a relative at 3.06%
and not worry about whether a portion of the arrangement would be considered a gift
by the IRS.  The program allows you to set the rate at whatever you agree on.
See their site at nationalfamilymortgage.com, and/or check out a guide to borrowing at this site. 
By the way, I've turned a few clients who are not yet ready to buy or sell onto 
the IRS's taxpayer guides to buying and selling.  They have great FAQs and scenarios.
 (I send these links out, along with the settlement sheet from transactions, to 
each of my clients on 12/31--who wants to go hunting for that one piece of paper
 when organizing for taxes when I have it tucked into my "settlement sheets" file
at the office?)  See this site/doc for potential buyers and this site for potential sellers.
 Is that new roof a expense related to the sale or an addition to basis, or neither?
 What about an upgrade from vinyl to hardwood in the kitchen?  Can you deduct transfer
taxes?  Loan points?  The answers might surprise you........  As always, talk to your tax professional first and last!

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