Parents as Kids’ Mortgage Lender

New options are available for those looking to buying their first home!

Lending standards are preventing many young potential home buyers from taking that first step. Parents are stepping up to the plate by taking on the role as mortgage lender so that their children are able to reap the benefits of the low home prices and record-low mortgage rates. The statistic for 2011 is that 1-in-3 first-time home buyers receive a gift or a loan from family members so assist in their first home purchase.

A simple guideline to follow if this is the route you take:

There are rules on how much you are able to gift to a child! In 2012, individuals may give $13,000 tax free in the time period of one year. Couples can gift $26,000. Instead of going the gift route, you may choose to act as a mortgage lender. If you do this, a parents can set up an arrangement in which they charge interest on the lent money, but it MUST be based upon the IRS’s “applicable federal rate.” Do you research before you begin the process! 

For more information, email me or check out this full article at Become Your Kid’s Mortgage Lender,” Fortune (February 2012)

2 commentsTim Hart • February 06 2012 02:48PM

Comments

Tim -- good information for people to be aware of, so they don't cross legal lines and create problems down the road.  Another thing they can do, is provide the money to the children 3-6 months in advance of the proposed purchase, so the money is in the kids' account and properly seasoned, to avoid extra paperwork.

Posted by Steven Cook, - Pierce, King, Kitsap, Thurston, Mason Counties (No Longer Processing Mortgages.) almost 3 years ago

Thanks Doug - good point on seasoning the money.   Tim

Posted by Tim Hart, Broker (Bozeman Broker Group) almost 3 years ago

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