4 Questions to Ask Before Lending Money to Your Child to Buy Bloomfield Hills Real Estate

Posted in Bloomfield Hills Real Estate by Michigan Real Estate Expert on September 29th, 2011

You’ve reviewed your finances and have decided you can afford to and want to help your child buy Bloomfield Hills real estate.  Is lending the money to your offspring your best option?  Here are some questions to consider when making this decision.

1.  Will you need the money later?

If there’s a chance that you might need the money to live on at some point, lending the money to your child is a better option than giving it to them.  You can always forgive part of the loan later on, if you find you don’t need the money to live on.

2. How much should you lend?

Depending on your financial situation, you can lend part or all of the down payment or part or all of the purchase price of the Bloomfield Hills real estate.

If you have enough money to lend the entire mortgage amount, consult with your financial planner to determine if this is the best option for you. Lending the entire amount often offers you more income than you’d get from a bank and gives your child an even lower interest rate than he or she would get with a traditional mortgage.  It also allows your child to deduct the mortgage interest because the loan is secured by the property.

3. Who will receive the mortgage payments?

Decide if you want to receive the monthly mortgage payments or if you’d prefer to have a third party service the mortgage.  If you want to know more about employing a third party to draw up the mortgage contract and accept the monthly payments, look into companies that handle intra-family loans.

4. How much interest should you charge?

As part of the loan agreement, you’ll want to charge an interest rate equal to the IRS-approved Applicable Federal Rates (AFRs). The AFR is the lowest interest rate you can charge without causing any unwanted tax complications.  Work with your financial and legal experts to ensure the loan agreement is in the best interest of both you and your child.

Let me help you find the Bloomfield Hills real estate that meets the needs of you and your child and get it at a great price.  Call me today at 248-514-2640 or email me at info@NorthWoodwardHomes.com.

Lee Morof
Associate Broker/Certified Distressed Property Expert/Attorney
RE/MAX Showcase Homes, Birmingham, Michigan
Call:  248-514-2640

1 Comment »

  1. 4 Ways to Help Your Child Buy Bloomfield Hills Real Estate said,

    October 3, 2011 @ 10:38 am

    […] know that you can lend money to your child to help him or her buy Bloomfield Hills real estate.  But you’d like to explore some of the […]

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