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Personal loan for down payment questions

By Vicente follow Vicente   2014 Oct 13, 2:53pm 15,576 views   30 comments   watch   nsfw   quote   share    


So I've decided to assist a family member with down payment on a house. This is a house in the city they are moving to.

The house in the origin city, is in a good neighborhood backing on a golf course. Estimated at least 1.5x the value of the new one. So once that sells I'll get my money back with a little interest.

I have cash lying around and I'm quite certain about the person I'm loaning to. They have money but it's in less liquid form than mine, didn't seem to me a good idea for them to extract it just now.

Anyhow, what pitfalls do y'all see?

Like for instance, transferring the money to them, can I just walk into my branch and ask them to wire X-thousands from my account to theirs across the country for zero or low fees?

Will there be issues like documenting the origin of the money? Just wondering if the mortgage people on that end will want to know if the 20% is coming from drug money or whatever.

Should I make up some sort of "personal loan" document and get it notarized? Or just regard this as a gift or leave it under the table?

#housing

1   cloud15   ignore (0)   2014 Oct 14, 9:33am     ↓ dislike (0)   quote   flag      

If you wire the money then your bank statements won't be reviewed (generally ) but any money used to be for downpayment coming from anywhere has to be legitimate and seasoned. You can gift upto 15 percent of downpayment according to guidelines. All back agreements in real estate are illegal. That means if you gift , the lender will make you sign a gift letter , essentially asking you to forget your money forever. So your "real contract " would never hold in any court of law.

2   MAGA   ignore (1)   2014 Oct 14, 11:01am     ↓ dislike (0)   quote   flag      

They are buying a house in a city that they are moving to? I think I would wait at least 2-3 years before even thinking about buying a house in a new area.

Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Hamlet Act 1, scene 3, 75–77

3   MAGA   ignore (1)   2014 Oct 14, 11:04am     ↓ dislike (0)   quote   flag      

Another thought on loaning money. A number of years ago I loaned a girlfriend $5K so that she could finish up her college degree. Never saw the money again. GF is long gone.

4   zzyzzx   ignore (2)   2014 Oct 14, 11:15am     ↓ dislike (0)   quote   flag      

Make them sell their existing house first. Problem solved.

5   Peter P   ignore (0)   2014 Oct 14, 1:13pm     ↓ dislike (0)   quote   flag      

Here is my take, if I care enough, I would make it a gift. Otherwise, I would not even bother with extending a loan.

In reality, for the right people, gifts bring good will. Loans tend to have the opposite effect in all cases, for everyone.

6   Peter P   ignore (0)   2014 Oct 14, 1:15pm     ↓ dislike (0)   quote   flag      

jvolstad says

Another thought on loaning money. A number of years ago I loaned a girlfriend $5K so that she could finish up her college degree. Never saw the money again. GF is long gone.

I expect Rin to jump in and talk about kept-women. :-)

7   Y   ignore (3)   2014 Oct 14, 1:21pm     ↓ dislike (1)   quote   flag      

since it's a family member i'd contractually get first dibs on a kidney or two as the match probability would be in your favor....

Vicente says

Should I make up some sort of "personal loan" document and get it notarized? Or just regard this as a gift or leave it under the table?

8   rufita11   ignore (0)   2014 Oct 14, 1:35pm     ↓ dislike (0)   quote   flag      

If you can see yourself never needing the money again and keeping the same relationship you have now with your family, go for it.

You have to be willing to say to the person, "If I never see this money again, I'll still love you. So, please don't worry if you find that you cannot pay me back." If you cannot say that sort of statement out loud to the person you are loaning the money to, don't do it.

9   turtledove   ignore (0)   2014 Oct 14, 1:59pm     ↓ dislike (0)   quote   flag      

The bank who is supplying the loan might have rules about it. For example, my bank limited gift funds to 6% of the purchase price. That said, there are tax implications (to the giver of the gift) of a gift over a certain amount. I'm not sure how much your talking about, but gift tax might be a consideration. The bank will not consider it a gift unless you say it is a gift, which means you cannot later say that it was a loan. In fact, if you indicate it is a loan, this will affect the loan applicant's debt-to-income. The downside of the gift is that you have no legal recourse to get the money back. If you call it a loan, the potential borrower might not get approved if it raises his DTI above roughly 43%.

10   Strategist   ignore (2)   2014 Oct 14, 2:09pm     ↓ dislike (0)   quote   flag      

Vicente says

Should I make up some sort of "personal loan" document and get it notarized? Or just regard this as a gift or leave it under the table?

They can sign a promissory note outside of escrow and after the close put a lien on the property.

11   Vicente   ignore (0)   2014 Oct 14, 2:38pm     ↓ dislike (0)   quote   flag      

Strategist says

They can sign a promissory note outside of escrow and after the close put a lien on the property.

Ah that is interesting. Prommissory note, I'll have to look that up.

I'll be more expansive. It's my Dad, he's moving to the town where my Mom is in memory care. He's retired and going to settle there for the remainder of his life, and visit her as much as he can.

So I'm not at all worried about ripoffs or family squabbles, I mean it's my Dad! But I want to make sure I do things correctly here. So there are minimal complications with his first mortgage, or tax issues or whatever.

The house he is trying to sell, has had a few lookers but no serious offers. We are inching down the price. Eventually that will sell and then he can pay me back and then some as it's a newer house and it's on a golf course.

We're talking about $20K here, it's a small town in georgia the house he's buying is only $92K. He was originally going to cash in Mom's IRA for the down payment but it's earning dividends and I just wanted him to keep that intact for contingencies. The memory care costs of course eat up their SS and then some.

12   SFace   ignore (0)   2014 Oct 14, 2:47pm     ↓ dislike (0)   quote   flag      

This is silly, get the bank account # and send your old man 20K.

13   Strategist   ignore (2)   2014 Oct 14, 2:48pm     ↓ dislike (0)   quote   flag      

Vicente says

I'll be more expansive. It's my Dad, he's moving to the town where my Mom is in memory care. He's retired and going to settle there for the remainder of his life, and visit Mom as much as he can.

So I'm not at all worried about ripoffs or family squabbles, I mean it's my Dad! But I want to make sure I do things correctly here. So there are minimal complications with his first mortgage, or tax issues or whatever.

We're talking about $20K here, it's a small town in georgia the house he's buying is only $92K. He was originally going to cash in Mom's IRA for the down payment but it's earning dividends and I just wanted him to keep that intact for contingencies. The memory care costs of course eat up their SS and then some.

Do you have evil siblings? If not, just give him the money. 10K to dad, 10K to mom. No tax issues. Or you gift him 10K, and your wife gifts him 10K.
Why not just rent?

14   Vicente   ignore (0)   2014 Oct 14, 3:10pm     ↓ dislike (0)   quote   flag      

Strategist says

Why not just rent?

He tried that for a while. He's used to living in a house, with a garage and a shop to putter in. Life is short, I want to help him get into someplace more comfortable for whatever time remains.

Thanks!

15   cloud15   ignore (0)   2014 Oct 14, 3:46pm     ↓ dislike (0)   quote   flag      

reading your situation a, Gift letter is the best route.

16   Vicente   ignore (0)   2014 Oct 16, 6:27am     ↓ dislike (0)   quote   flag      

Just to follow up on the "gift" solution....

I got a call from my Dad that he checked with his tax advisor, and over $13K does create tax issues. However $13K and under is not a problem.

So best thing is to gift half to my Dad, and half to Mom. He has power of attorney for her in any case.

Thanks again!

17   anotheraccount   ignore (1)   2014 Oct 16, 7:12am     ↓ dislike (0)   quote   flag      

Vicente says

I got a call from my Dad that he checked with his tax advisor, and over $13K does create tax issues.

The tax adviser does not have the right info. It's 14K per person. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes

18   turtledove   ignore (0)   2014 Oct 16, 7:15am     ↓ dislike (0)   quote   flag      

tr6 says

Vicente says

I got a call from my Dad that he checked with his tax advisor, and over $13K does create tax issues.

The tax adviser does not have the right info. It's 14K per person. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes

There's also a lifetime limit of over $5m excluded per person. So, you could give him $14k in December and then $14k in January and you'd be fine.

19   Strategist   ignore (2)   2014 Oct 16, 9:40am     ↓ dislike (0)   quote   flag      

turtledove says

tr6 says

Vicente says

I got a call from my Dad that he checked with his tax advisor, and over $13K does create tax issues.

The tax adviser does not have the right info. It's 14K per person. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes

There's also a lifetime limit of over $5m excluded per person. So, you could give him $14k in December and then $14k in January and you'd be fine.

Lifetime limit of $5million only? There goes my sneaky plans right out the window.

20   cloud15   ignore (0)   2014 Oct 17, 3:46am     ↓ dislike (0)   quote   flag      

Tax advisor is misinformed , there is a lifetime limit if 5M.

21   E-man   ignore (0)   2014 Oct 20, 1:30am     ↓ dislike (0)   quote   flag      

SFace says

This is silly, get the bank account # and send your old man 20K.

I second SF ace. This is silly. Just give your dad $20k and sign a gift letter so he can obtain a mortgage. You don't have to file anything with the IRS. They don't have to know. Keep it simple.

22   Vicente   ignore (0)   2014 Oct 20, 8:04am     ↓ dislike (0)   quote   flag      

What sort of gift letter? Is there a standard template or form?

Thinking right now to send $14K to my Dad, then remainder to Mom.

Reasoning we worry about taxes and estate planning, is she is in memory care now which we are paying for out of her half of the estate. Eventually she may need nursing home which is way more expensive. So I'm cautious about loading the estate when strategically it may be to our advantage to have her half of the estate impoverished sooner than later, so medicare will take over when we need it. They are both 80+ so there's lots of uncertainties.

23   FortWayne   ignore (4)   2014 Oct 20, 8:57am     ↓ dislike (0)   quote   flag      

I've seen a similar case on Judge Judy. What happened there was a son loaned money to father who passed away later, and it turned into inheritance issue between him and his sister. Without any kind of legal document to back the promise to pay it back, he could do nothing about it.

I don't know if that helps, but seems like it's not a bad idea to get something in writing.

Personally from what I've lent to relatives over years, I'm pretty sure I've gotten at most 30% of it back if even that. I only lend money to relatives that I can afford to never get back.

Best of luck Vicente.

24   Y   ignore (3)   2016 Jul 8, 3:43pm     ↓ dislike (1)   quote   flag      

First DNA testing, then the money.
Trust but verify...

The Professor says

Vicente says

I mean it's my Dad!

Just give him the money.

He gave you life.

25   HEY YOU   ignore (10)   2016 Aug 17, 5:06pm     ↓ dislike (0)   quote   flag      

"pitfalls"?- a personal Black Swan that no one expects that prevents the borrower from repaying a loan.
In patnet terms: Shit happens!
Everyone's response: We didn't see this coming!

Never loan to anyone that pays more than 10% of listing price.

26   HEY YOU   ignore (10)   2016 Aug 17, 5:09pm     ↓ dislike (0)   quote   flag      

Vicente,
Can you name "the origin city"?


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