4 Questions to Ask Before Lending Money to Your Child to Buy Santa Cruz Real Estate

Posted by Lauren Spencer on Thursday, September 1st, 2011 at 1:31pm.

You’ve reviewed your finances and have decided you can afford to and want to help your child buy Santa Cruz 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 Santa Cruz 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 interest 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 interests of both you and your child.

Let me help you find the Santa Cruz real estate that meets the needs of you and your child - and get it at a great price!  Call me today at 831.662.6522 or email me at Lauren@LaurenSpencer.com.

For additional information visit my website at www.MySantaCruzRealEstate.com

Links:

Lend the money to your children

Intra-family loans

Applicable Federal Rate

About Lauren Spencer

Award-Winning Santa Cruz REALTOR®

Lauren Spencer is your local real estate expert, specializing in Santa Cruz real estate and surrounding communities—this is where she lives, works, and plays too. Let her know your questions about the community and county and she'll be happy to fill you in on all you want to know! Lauren Spencer has consistently been voted best local REALTOR in Santa Cruz and is always happy to offer her advice and expertise. Call her at: 800.226.4717.

Join Lauren On Social Media

Leave a Comment