Questions about private mortgage financing through a family member?

I am interested in propositioning my grandparents to buy a home using their cash, and me pay them back. I am aware this can be setup using an escrow service, and establishing financing terms.

The current AFR is 4.44% for long term Feb. 2010 loans. Therefore a mortgage rate of 4.5% would be acceptable for this scenario.

While paying my mortgage back, is my interest tax deductable?

Will my grandparents be taxed on the interest received as income?

If I dont deduct my interest on my taxes, would they still have to pay income tax on the interest received?

Does anyone have any tips on the best way to set up a private mortgage scenario?

Thank you

Update:

"Realtor" - of course you are biased on this issue becasue it takes away from your "chain of profits".

let me explain something. There is no taking advantage of anybody, and my FICO is 740. The point of this sort of financing is to give a family member the 4.5% interest instead of an evil bank.

And a cash buyer can scoop up a property in SoCal faster and cheaper than a buyer relying on financing.

9 Answers

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  • ?
    Lv 7
    1 decade ago
    Favorite Answer

    Have a lawyer draw up the contract, set up an automatic withdrawal from your check to grandparents account. Yes they must claim interest as income and yes you can deduct it.

  • Anonymous
    4 years ago

    Private Mortgage Family

  • 1 decade ago

    Depending on the term of the loan (10, 15 or 30 years), 4.5% is low.

    If they record the note, then yes, the interest is tax deductable.

    Yes, they will pay taxes on the interest they earn from you. It's income. They will need to issue you a 1099 each year. No big deal, you can get them at Staples.

    Even if you don't deduct the interest paid, they would still need to pay taxes in the interest they earn. Again, it's income.

    Have a real estate lawyer draw up the papers. It's easy

  • Oreo
    Lv 7
    1 decade ago

    Your interest you can deduct if you go long form which most dont unless you have a lot of bills

    and interest to show the IRS. Its more simplier use the short form any more. Yes your G=parents has to report the Interest on the loan. My self when loaning money to someone I add the interest in.

    For example they borrow a 1,000 and going to pay me back 1,050 or 5 %. I have them sign a contract that they owe me $1050 and no mention of interest in it so I dont have to pay it. Always get a contract no matter how good a friend or relative is and how you agree for them pay you back and I state in there they have to pay for all court cost in the event of a dispute. That way you have proof to show the Judge/ Hope this helped and have a nice day!

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  • 1 decade ago

    Bill sounds like you don't qualify to borrow to purchase a home on your own. That is a question. While what you state is possible, it sounds like you intend to take advantage of your grandparents.

    What you are describing is a "Contract for Deed". If they currently own the house, then they could sell it under these terms to you. But if they do not own the house and what you are proposing is they buy a house then sell to you, they would need to qualify for a loan to do that.

    You may want to rethink what plans you need to make to be able to buy a home on your own.

  • Anonymous
    4 years ago

    You get the comparable earnings. although if the financing is thru a private source including a family individuals member you will be able to desire to coach their call, handle and TIN on your return to take the deduction. of course they are going to be searching for the pastime earnings from the lender.

  • mary
    Lv 4
    4 years ago

    I don't believe that is right

  • Anonymous
    4 years ago

    I don't believe that to be accurate

  • 4 years ago

    Lots of great answers already for this

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