One of the newest trends in real estate is a family mortgage. These mortgages are home loans set up between family members, usually between parents or grandparents and children, with the goal of helping a relative purchase and own a home. According the National Association of Realtors, almost 10 percent of first-time buyers received loans from friends or family in 2010. These loans are becoming popular not only because of low interest rates, but also because of the security involved when it comes to borrowing from family. Before signing up for family mortgages though, both participants should consider three key factors: Whether or not a bank would lend to the family member, gift tax and interest rates.
If a family member does not qualify for a loan from the bank, there is a chance they could have difficulty making payments on a loan from a parent or grandparent. Be sure to know the financial situation of both family members involved before signing any paperwork. Especially in the case of large loans, lenders are encouraged to watch for gift taxes when it comes to giving a loan to a family member. In addition to paying attention to gift tax, lenders are also encouraged to include a clause on interest rates to be sure that the lender and the home buyer agree that the rate will stay the same or increase after a set amount of time.
Want to see if you and your family member qualify for a family mortgage? Contact your local bank or lending firm, and begin planning your family's dream home today.