Today is Pearl Harbor Day, commemorating the attack on our Navy ship at Pearl Harbor, Hawaii on December 7, 1941. I’m sure there are many people still living on the island of Anna Maria will remember the events of that day or learn about them at school like I did. But what does Pearl Harbor have to do with families and money? Family was important and still is, but after the attack on Pearl Harbor and the subsequent entry of the United States into World War II, family ties became even more important.
With rising interest rates and slowing real estate sales, home ownership remains out of reach for many buyers, especially first-time buyers. This is where family ties begin. One of the options available to help young buyers, especially those with poor credit ratings, is to have parents arrange a mortgage. A qualified cosigner can mean the difference between a buyer securing a mortgage or living in their one-bedroom apartment. However, parents who may be desperate to take this leap should understand what their obligations are.
Individuals who sign a mortgage are solely responsible for repaying the loan, not homeowners. Therefore, if your children default on the mortgage, you have no way of forcing them to sell the property. You’re stuck with all the monthly payments but don’t have the normal rights of a homeowner.
However, parents can have all the rights of the owner if they are investors in the property and not just a guarantor. This gives them co-ownership in the field and more decision-making power. Regardless of the choice in your family, branding is a risk for parents who may be preparing for retirement and can’t risk their investments if things don’t pan out. planned.
For family members who have the financial strength, holding a mortgage for a family member is another option to help children or other family members get into a home. . In fact, the parents will be the bank, and the children will repay the mortgage according to the agreed terms. It might be a win-win situation for everyone; parents have the opportunity to help their children and the children end up with an interest rate that is much lower than the commercial offer. The IRS has rules that set a minimum interest rate for loans between family members to consider.
This type of arrangement must have the proper legal documentation to satisfy the IRS that it is not a gift. Financial gifts for anyone, including children, have special rules on the amount of gifts that can be given without any tax being payable. Registering the loan as a mortgage on the property at the local government office also provides additional benefits. Children can claim a mortgage-interest deduction for the mortgage debt, again limited based on federal law and their personal tax returns.
Under the best of circumstances, entering into a financial plan with family members can be a challenge. There may be arguments about the care of the land, jealousy from other family members and it may be a big financial risk for the person giving the money. It is not something to enter into without serious thought and professional help.
Franklin Roosevelt’s famous speech shortly after the attack on Pearl Harbor ended with “a day that will live in infamy.” Remember that when entering a business venture with the family, try to avoid your bad day.
