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It all seems perfectly reasonable: one person is not satisfied with what he can earn currently in the market and another wants to find the most attractive mortgage to purchase their home. It can be a good match but the IRS has specific rules that govern the transaction.
The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien in order to allow the interest deduction.
Sometimes, these friends and family situations have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS according to current Treasury securities. For October 2011, the rate is 2.95% for terms over nine years.
The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.
A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments. Your tax professional can guide the transaction whether you're a buyer or seller and your real estate professional can help arrange to have the documents drawn and filed.
"The significant problems you face today cannot be solved at the same level of thinking you were at when you created them." Albert Einstein
The housing market has definitely caused significant problems for some people but is also providing some amazing opportunities for others. Agents aren't like retailers who wake up one day realizing they have the wrong merchandise on the shelves.
Everyone needs a place to live and whether you rent or buy, you pay for the house you occupy. While the home for sale remains the same, the methods that produce results have to change.
Listing agents are diametrically opposed to the objectives of buyer's agents. This is not to say that there cannot be a win-win situation but each agentis trying to negotiate the best price and best terms for their client.
Financing can make listings more marketable and structure a transaction to provide the buyer with the cheapest cost of housing. Personal experience is a great teacher but a very expensive way to learn. An expert, like a Residential Finance Consultant can provide information and tools to make better decisions to be able to profit in the current market.
