Investor · Kansas City, KS · Member since 2021 · 24 posts · 5 votes
We found a house we want to purchase. My parents want to help us pay for it and we pay them back on interest. What is the simplest way to do this? Any resources who can help us structure this (other than https://www.nationalfamilymortgage.com/ who does not offer support in our state)?
Here is what is being considered:
SCENARIO 1):
1) Parents loan us money at X% rate. 2) Loan terms would allow for early payment without penalty (we would get a conventional loan in 2-5 years to pay parents back).
Q1) Is there a minimum interest rate requirement? Q2) Would there be an issue with this? Q3) If it's a loan from our parents that we are paying off, who holds the title to the home? Q4) How would the parents' ROI (interest pmt received) be taxed?
SCENARIO 2):
A) Parents buy the home and we live in it.
QA) Is there a way to make this work that we would ultimately buy the property in our name? Rent-to-own, or something? Ultimately after 2 years we would be able to get a conventional loan and pay them back. Their assistance will help us buy the house now.
Investor · Kansas City, KS · Member since 2021 · 24 posts · 5 votes
2y
@Kristine Ann No, but spoke with connection/VP at the bank. Explained the situation and he said it may be a challenge to get another conventional loan (investment loan is being considered as well but; Family loan = plan A, bank loan = plan B).
We want to keep the property we live in now (since Oct 2023) and rent it out when we leave. The property we wish to purchase would be a fix & flip. During rehab process the bank sees us with; 2 mortgages, 0 rents, and 1 income (spouse not working) and would be too risky. 2 mortgages will make us at borderline break even cash flow with existing income. We have a chuck of cash stores to keep us going for a while as emergency if needed. Parents recognize this and are comfortable/agree. Bank is cold about it. In 2-5 years we will have moved into new property and secured a renter to cover mortgage in the existing home. With an established rental income on the existing property and more appealing cash flow the bank would find us more eligible for a loan at that time. I also want parents to have the option to back out in 2-5 years if for whatever reason they no longer feel comfortable or want to invest somewhere else.
We would prefer the loan from the parents. They have the money in CD's set to expire soon. The interest rate we would pay them would be more that the CD rate (win) yet lower than the banks mortgage rate (win).