TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
A GUIDE TO
The ultimate way to
manage home financing
between family members.
FAMILY MORTGAGES
National Family Mortgage
HELPS YOU SET UP YOUR
OWN REAL MORTGAGE WITH
RELATIVES. ALONG THE WAY,
WE'LL HELP YOU BEAT THE
BANK, PREVENT TAX
PROBLEMS, AND SAVE
(OR, EVEN MAKE) THOUSANDS
OF DOLLARS. THEN, WE CAN
ALSO HELP MANAGE THE
REPAYMENT PROCESS, ISSUE
YEAR END TAX FORMS, AND
KEEP THINGS BUSINESS-LIKE.
IT SOUNDS GOOD, DOESN'T IT?
IT GETS EVEN BETTER . . .
1
OUR CUSTOMER
BILL OF RIGHTS
2
WHAT IS A
FAMILY MORTGAGE?
3
HOW DO I SET UP A
FAMILY MORTGAGE?
7
STANDARDS
10
TIPS FOR
THE BORROWER
11
TIPS FOR
THE LENDER
13
Q&A
15
SAMPLE APPLICATION
17
TABLE OF CONTENTS
ABOUT NATIONAL
FAMILY MORTGAGE
THE LEGAL FINE PRINT
BEFORE WE GET STARTED, WE’D LIKE TO GIVE OUR LEGAL TEAM THEIR MOMENT IN THE SPOTLIGHT.
The materials in this guide should be used for general guidance and informational purposes only and are not geared toward
any specific transaction or goal. Every transaction is unique and questions about your specific loan transaction, its
circumstances or any recent changes to the laws of your state that might affect your loan should be directed to a licensed
legal or real estate professional in your state. We recommend that you consult an attorney or tax advisor before entering
into a financial transaction of this nature. National Family Mortgage, LLC is not a law firm and does not provide legal
advice or tax advice. National Family Mortgage, LLC is not a lender or a loan broker and does not originate loans on behalf
of other parties. The information contained herein is the sole property of National Family Mortgage, LLC, and may not be
reproduced or redistributed for any purpose without the express written consent of National Family Mortgage, LLC.
National Family Mortgage does not conduct business in every state and does not offer a solution for every
intra-family real estate situation. Please review our "Standards" on page 10 of this guide, and as also
found on our website, for complete restrictions.
© 2012-2014. National Family Mortgage, LLC. All rights reserved.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
How We Do It
We are not a bank. We are not your
attorney, financial advisor, or accountant.
(Although, we'd love to meet them.) We are
a niche financial services company that
helps protect families who are borrowing,
lending, or gifting money with relatives to
purchase, refinance, or renovate a home.
Our customers directly invest in and borrow
from family, avoiding the cost and red-tape
of a broken mortgage system.
We take the simple, often overlooked steps
that make sense when you’re doing a loan
with a relative. Mortgage loans can be
especially tricky. Our secret? Experienced,
friendly, and reliable support from our
team - every step of your way.
Real estate loans and financial gifts with
relatives can be a win-win for both sides,
but should be documented properly.
National Family Mortgage helps minimize
the legal and federal tax consequences that
can occur when family real estate loans
and financial gifts are documented
improperly – or not documented at all.
Mortgage Loans That Fit You
Loans and mortgages between family and
friends reflect an age-old impulse to lend
a helping hand. They’re typically used for
big life events: to buy a home, to start a
business, to finance an education. But
mixing money and relationships can be
awkward. That’s where we come in.
We help lenders make loans they feel
good about, that prevent tax problems,
that get repaid, and protect relationships.
We help borrowers fund their dreams and
stay on track with payments. Our goal is
to make family mortgage lending and
borrowing safe, easy, secure, and
successful.
Our team has been doing this for years.
We've helped families across America
manage over $220 million in peer-to-peer
home loans, while keeping over $101
million of interest within familes. We've
been featured on the cover of USA Today,
we've won some pretty big awards, and
we've saved (and even made) our
customers a lot of money.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Structure the loan
Document the loan
Register the loan
Email payment reminders
and monthly statements
Collect and credit payments; issue
year-end IRS 1098 and INT-1099 tax
forms
Hopefully, this guide will give you a clear
understanding about what we do and how
we do it. Then, you can make an informed
decision about our solutions and your
goals. If you ever have any questions,
please give us a call or email us through
our website. We're always here to help.
At the end of the day, we want to make
your family mortgage loan a success and
you happy. Why?
One, so you’ll refer your family and
friends to us. And two, because we really
love beating the banks!
ABOUT NATIONAL FAMILY MORTGAGE
About National Family Mortgage
1
FIT.
You have a right to dream big.
You have a right to a mortgage loan that fits
your needs. If we can help, we'll let you
know. If not, we'll let you know that, too.
Flexibility and open communication are
always a good fit.
National Family Mortgage supports the
American dream of home ownership and we
are committed to helping you get and stay
there.
FREEDOM.
LOVE.
You have a right to break free from the
tyranny of a corrupt and broken banking
system.
You have a right to use your money to help
the ones you love.
You have a right to build your own bank.
You have a right to choose your own
interest rate. You have a right to invest your
own money where it belongs; in a place that
most benefits you and your family.
Banks will never love you like your family
does.
HONESTY.
VALUE.
You have a right to talk honestly about
money.
You have a right to get more than you pay
for. You have a right to be treated fairly.
You have a right to save a lot of money.
You have a right to learn if a National
Family Mortgage is right for you.
Whether you're offering a loan to a
loved one or asking for one, it may be
a little awkward at first. Don't let that
stop you. Speak from the heart. We're
always here to help you.
OUR CUSTOMER BILL OF RIGHTS
DREAMS.
303 Wyman Street, Suite 300 | Waltham, Massachusetts 02451
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
2
Just like a traditional bank mortgage, a
National Family Mortgage might be used to
buy, refinance, or renovate a home -- or
even as a way to secure a personal loan
used for other non-real estate purposes.
Seller financing (also called owner financing,
or owner carry-back) is a type of transaction
where the seller agrees to receive regular
payments from the buyer—instead of one
lump sum payment—until the agreed upon
amount is paid. The seller still transfers the
deed or title (the ownership instument) of
the property to the buyer, but in return
receives a mortgage, entitling him or her to a
schedule of payments and a lien on the
property until the loan is repaid. In the hands
of someone who knows how to use it, seller
financing opens up a range of creative
financing possibilitiesthat can benefit both the
seller and the buyer.
A National Family Mortgage helps create a
win-win situation for your family.
Deals between relatives. Relatives can use
seller financing to pass ownership in a
property from one family member to another,
often with low interest rates and payment
schedules favorable to the buyer, while
helping the seller prevent IRS Gift Taxes.
Lenders generate a solid investment
return at stronger rates than they would
earn in a bond, money market or a
savings account; borrowers get a lower
interest rate and lower fees than they
would with an institutional lending source.
Many families use National Family
Mortgage to simply prevent IRS federal
gift taxes. A National Family Mortgage
can provide the legal structure and tax
benefits of a bank mortgage with a
flexibility that fosters a win-win mortgage
transaction for everyone.
Best of all, a National Family Mortgage
keeps your money in the family.
Why pay interest to a bank if you don't
have to? Why not pay the interest to
someone you care about?
This guide is all about how a National
Family Mortgage can help pass ownership
in a property from one family member to
another.
If you want to learn more about how
National Family Mortgage can help with
the refinance of a bank mortgage, a
home improvement loan, or a seller
finance transaction, please go back to
our website and download the
appropriate guide.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
WHAT IS A FAMILY MORTGAGE?
LEARN MORE . . .
What is Seller Financing?
3
Is Seller Financing
Right For You?
LENDER BENEFITS
Seller financing may be right for you if you can
agree with any of the following:
I own my property outright, or can pay off
my current mortgage balance with a down
payment from my buyer, or other funds.
I don't need all of the purchase money
owed to me at once .
If you don't need all the money generated from
the sale of the home all at once, and are also
looking for an investment that generates a
regular stream of income, seller financing may
be an excellent option for you.
I have a property which banks avoid
financing.
Tax
Protection
A Strong
Investment
Vehicle
Relationship
Protection
Monthly
Income
Stream
Asset
Protection
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Tax protection:
The current IRS annual gift tax exclusion is $14K
per person. If you simply transfer the deed to your
home to a relative, the IRS may treat the
fair-market value of the property as a taxable gift.
In order to prove the exchange of value is not a
taxable gift, but a legitimate loan, you must
properly document your offer of Seller Financing
and report earning interest on the loan at a rate
equal to or above the minimum rate required by
the IRS, called the Applicable Federal Rate (AFR).
Even if you document the loan of value, but report
earning less than the appropriate AFR, the IRS
may impute the interest as income and also view
the forgone interest as a taxable gift.
Relationship protection:
Proper documentation sets clear
expectations and prevents future
misunderstandings. If anything happens to
the lender, registered documentation also
protects the interests of other children or
family members who could be affected by
the proper accounting of the loan. Our
optional loan servicing platform reduces
awkward conversations, provides year-end
1098 and INT-1099 tax forms for the IRS,
and keeps everything business-like.
A strong investment vehicle:
Family lenders are able to generate a solid
interest rate relative to comparably safe
investments such as money market
accounts, certificates of deposit, treasury
notes, and savings accounts.
Monthly income stream:
A National Family Mortgage generates a
recurring monthly cash revenue stream from
payments by the borrower. This is an
attractive feature relative to other
investments, especially for retirees and
others on a fixed income.
Asset protection:
As long as the loan is secured by real estate,
the lender can rest assured that their
investment is protected with a registered
mortgage lien as filed with the proper
government authority. This can be
particularly important when an unforeseen
event occurs, such as the death of the
borrower, or a borrower's divorce.
4
4
LEARN MORE . . .
Know the Tax Rules
You can deduct your home mortgage interest only
if your mortgage is a secured debt. A secured
debt is one in which you sign an instrument
(such as a mortgage or deed of trust) that:
Makes your ownership in a qualified home
security for payment of the debt
Provides, in case of default, that your home
could satisfy the debt, and
Is recorded or is otherwise perfected under
any state or local law that applies
In other words, your mortgage is a secured debt
if you put your home up as collateral to protect
the interests of the lender. If you cannot pay the
debt, your home can then serve as payment to
the lender to satisfy (pay) the debt.
Home acquisition debt is a mortgage you took out
to buy, build, or substantially improve a qualified
home (your main or second home). The total
amount you can treat as home acquisition debt at
any time on your main home and second home
cannot be more than $1,000,000.
Tax
Protection
Low
Fees
Relationship
Protection
Better Deals
On Homes
A Low
Interest
Rate
Flexibility
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
BORROWER BENEFITS
Tax deductible interest:
When a home loan from a relative is
properly formalized and registered with the
proper government authority, the borrower
can deduct the mortgage interest paid, just
as with a traditional bank mortgage.
(You can't legally deduct interest payments
on non-registered home loans.)
A low interest rate:
Often, interest rates charged through
intra-family arrangements are lower than
rates charged through banks and traditional
lend-ing institutions. On average, National
Family Mortgage interest rates are between
one half to one full point lower, and that
can add up to thousands of dollars in
interest savings over the life of the loan.
Low fees:
Traditional lenders usually require lender's
title insurance, appraisals, and property
inspections, which can be costly. Family
lenders typically do not require these third
party services or expenses as a condition
of making a loan. You can save thousands
in closing costs with a National Family
Mortgage.
Better deals on homes:
Borrowers with secure financing can
usually close quickly and often negotiate
better deals on homes.
Flexibility:
You qualify as long as your lender trusts
you can pay back the loan. A traditional
bank loan application can take weeks of
work and waiting with no guarantee of
approval. You set the loan terms
(but within our standards.) Try that
with a bank loan!
For more information on the IRS’ rules
regarding the home loan interest
deduction, see IRS Publication 936 or
IRC 1.163-10T(o)
5
4
LEARN MORE...
SO, WHAT DOES ALL
THIS COST?
MORTGAGE PRODUCTS
For a one-time fee of $725, National Family
Mortgage provides the financing documents for
your family mortgage transaction: the promissory
note, the mortgage itself, the legal description,
and a repayment schedule. National Family
Mortgage will also record your mortgage with your
local county Registry of Deeds.
In addition to National Family Mortgage's one-time
$725 fee for service, the following states require
mortgage taxes must be paid at the time of county
recording: AL, FL, GA, HI, KS, MD, MN, NY, OK,
TN, VA
It is the client's responsibility to pay these
additional state specific taxes. We will include an
invoice for any required mortgage recording
taxes when we email the parties their documents
for review.
If your subject property is in one of the states
listed above, please refer to the Standards area of
our website for more information and tax rates.
OPTIONAL LOAN SERVICING
POWERED BY FCI LENDER SERVICES, INC.
Monthly statements to both Borrowers and
Lenders, electronic payment processing, and
annual IRS tax statements help eliminate
awkward conversations and set clear repayment
expectations for both parties.
The monthly servicing for family mortgage loans
up to $500k is $15 per month. The monthly
servicing fee for loans over $500K - $1M is the
greater of .075% of the unpaid principal balance
divided by 12 (months) or $15. Loans over $1M
add $15 per million. Once the loan is activated for
servicing, should the loan parties wish to amend
any loan terms, there is a $45 data entry fee.
OPTIONAL ESCROW/IMPOUND ACCOUNTS
FOR PROPERTY TAXES AND INSURANCE
The Escrow/Impound service fee is $15 per month
and will be added to the standard $15 monthly
loan servicing fee (i.e., $30 per month total).
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Loan Products
Standard mortgage payments include
principal plus interest, but you can also
choose to make interest-only payments. Here
are some considerations to help you choose
the best National Family Mortgage to reach
your goals:
• THE WIN-WIN MORTGAGE (Amortized)
Our Win-Win Mortgage grants borrowers
access to funds at a lower interest rate
than they would otherwise receive from a
bank, while providing lenders with a
higher return than more conservative
investments such as CDs, money-market
accounts, bonds or savings accounts.
• THE GIFT MORTGAGE (Interest-Only)
With our interest-only Gift Mortgage at
the IRS Applicable Federal Rate (AFR),
lenders may choose to annually gift
principal up to the IRS $14,000 per person
gift limit. This program helps families
legally transfer wealth to their loved ones
while minimizing the federal gift tax and
imputed interest consequences.
(The intention to gift principal is theorized,
but not absolutely required.)
In this section we outline the steps to set
up your National Family Mortgage. These
are:
Agree to the terms and payment schedule
Create and register a legally binding
document
Set up a plan for servicing
(managing the repayment of) the loan
TERMS AND PAYMENT SCHEDULES
Following is a list of the basic terms the
borrower and lender establish in order to
prepare a family mortgage.
Loan party contact information
Names, addresses, phone numbers, and
email addresses of all borrowers and
lenders.
Subject property information
Address of property to be mortgaged,
including names of current owner(s) of
record.
6
Loan amount
The total amount that is to be borrowed.
SHORT-TERM RATES
For loans up to 3 years.
Interest rate
The loan agreement will clearly state the
annual interest rate to be charged. The
lender and borrower should pick a rate
using the following guidelines:
July 2014
.31%
August 2014
.36%
September 2014
.36%
____________________________________
MID-TERM RATES
For loans more than 3 and up to 9 years
July 2014
1.80%
August 2014
1.87%
1.84%
September 2014
____________________________________
LONG-TERM RATES
For loans more than 9 years.
July 2014
3.02%
August 2014
3.05%
September 2014
2.93%
All National Family Mortgages require
Borrowers to make monthly payments.
Therefore, the minimum annual rate of the
Loan is based upon the proper Monthly AFR.
*In a Seller Financed transaction, the US tax
code allows the use of the lowest of
the applicable Federal rates in effect for any
month in the 3-calendar-month period
ending with the 1st calendar month in which
there is a binding contract in writing for
such sale or exchange.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Loan start date
The date that the funds are disbursed for
the borrower's benefit.
National Family Mortgage requires all
loans be documented at the proper
Monthly IRS Applicable Federal Rate
(AFR) in effect at the time of the
transaction, with a cap of 6.00%.
Consider the opportunity cost to the
lender. The money loaned would most
likely be earning a return if invested elsewhere (i.e., a savings account or CD).
Consider that alternative and pick a rate
that both parties feel is fair given
alternative uses of the money.
Loan term
How long does the borrower have to
repay the debt? Last month, the
average National Family Mortgage loan
term, as determined by our customers,
was 25 years. There is no pre-payment
penalty within any of our documents.
Some families will amortize the
borrower's payment schedule over a 30
year term, but include a "Balloon"
payment that requires the borrower pay
any outstanding principal by a shorter
date. A Balloon schedule grants the
borrower the benefit of a lower payment
based on a longer term, while setting a
clear expectation that they are expected
to pay off the loan within a shorter timeframe.
Optional demand clause
While all of our loans are term loans,
lenders have the option of incorporating a
demand clause that will grant the lender
the ability to "demand" the borrower
repay outstanding principal within 60, 90,
or 120 days of the demand.
HOW DO I SET UP A FAMILY MORTGAGE?
HOW CAN WE HELP?
CURRENT IRS APPLICABLE
FEDERAL RATES
7
REAL PEOPLE USING
NATIONAL FAMILY
MORTGAGE. SEE HOW
KEEPING A HOME LOAN IN
THE FAMILY CAN PAY OFF.
"I want to thank National Family Mortgage for
helping my family. Your Win-Win Mortgage really
lives up to its name. As a corporate lawyer, I
appreciate how you’ve really simplified a
potentially daunting process (at a very fair price)
and that you were always there to answer my
questions. I’d encourage anybody considering an
intra-family mortgage to use your service.
Consider me a very satisfied customer!”
- Mark, Massachusetts (Lender)
"Our experience with National Family Mortgage
was excellent. Aside from the great customer
service, one cannot discount the absolutely vital
importance of having a professional handle a
family mortgage. Proper documentation and
protocol are paramount, and it's easy to feel as if
it is acceptable to not do it properly. Thank you
for making the process both legitimate and
painless. It is greatly appreciated."
- Brent, Texas (Borrower)
“A smart mortgage is a family mortgage. My
parents get a great return on their investment
and I get a great rate on my loan. National
Family Mortgage gave me all the tools to make it
happen and it was easy. It’s the best and most
stress-free decision our family ever made
together.”
- Tom, Massachusetts (Borrower)
“After reading about National Family Mortgage,
we decided to use their Win-Win mortgage. This
was a truly great deal for our kids as they are
getting a very low interest rate from us and it’s a
great deal for us as we get a higher return than
we would in any other safe investment!”
- Dave, Michigan (Lender)
What a great service! The whole process was
remarkably simple. And when we needed a little
hand holding, National Family Mortgage was
available by telephone, and exceptionally helpful.
Our family could not be more pleased.”
- Phil, California (Lender)
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Late payments and default
In the event of any problems with repayment of the
loan, it is important to have the consequences
spelled out so both parties are clear about how to
handle the situation. All National Family Mortgages
include a 15 day “grace period” after which a
payment is deemed “late” and a late fee becomes
due. Our internal standards require a late payment
penalty between 1.00% - 4.00% of the borrower's
standard payment amount.
CREATE A LEGALLY BINDING DOCUMENT
Once all of your loan terms are set, it’s time to
make the agreement legally binding. All National
Family Mortgages have two crucial components:
Promissory Note: The promissory note establishes
the legal debt between the parties and records how
that debt is going to be repaid.
Mortgage/Deed of Trust: This is the security
instrument through which the borrower offers their
property as collateral to the lender in exchange for
the loan. Attached to the Mortgage/Deed of Trust is
a legal description of the property, that we will
obtain from the County. This document will be
legally recorded with the appropriate government
authority.
Within seven business days of submitting our online
Application, we will email both parties their
completed mortgage documents for review and
notarized signature. When necessary we will also
email documents to your closing attorney, title
company, or closing agent. We will also include set
up forms for our optional Family Mortgage Loan
Servicing program. (You'll find more about this
onthe next page.)
Please remember, National Family Mortgage only
helps you generate your financing instruments. In
parallel to your mortgage documents, you must
prepare and file a deed transferring ownership of
the property. Some familes are comfortable drafting
and filing their own deed. Many states, as
referenced on page 9, require attorney involvement.
National Family Mortgage recommends contacting a
local attorney or title company for help.
Following the notarization of the mortgage, the
parties then return the original documents to
National Family Mortgage for legal public recording
at the appropriate government authority, or when
necessary, through your closing attorney/agent.
8
LEARN MORE...
HOW CAN THE INTEREST
RATE ON A FAMILY
MORTGAGE BENEFIT BOTH
THE BORROWER AND THE
LENDER?
Though bank mortgage rates fluctuate over time,
they are usually 2–3% higher than the
Applicable Federal Rate (AFR), the rate that the
IRS requires as a minimum for private loans. At
the same time, the AFR tends to be higher than
the rate individuals can earn on short-term cash
investments, such as money market accounts
and CDs. This means that the parties to a family
mortgage can agree to a rate that is lower than
a traditionally available mortgage (to the
borrower’s benefit) and higher than alternative
cash investments (to the lender’s benefit), and
that meets the IRS guidelines for a private loan.
For example, a son closes on a family mortgage
at 3.00% and feels he has won because he is
getting the money he needs at less than it is
available from banks. His win is felt as a reduction of thousands of dollars in interest payments
over the life of the loan. If we assume that his
parents were earning 2.00% keeping their money
in CDs, by issuing the mortgage they have
increased their investment return from 2.00% to
3.00%, a win for the parents that is felt in
increased monthly cash payments. The 3.00%
rate is thus a win-win and is acceptable to the
IRS because the AFR for that month is 2.39%.
In addition, even though the loan is between
family members, as long as it is structured as a
formal mortgage, the son will also be able to
deduct his interest payments on his taxes, just as
if the intra-family mortgage were a bank mortgage. The parents will have the protection of
knowing that the loan is secured by real estate,
and that they have the option to gain ownership
of the home in the case of default, to recapture
any loss on the loan.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
OPTIONAL MORTGAGE LOAN SERVICING
With our optional Family Mortgage Loan
Servicing program powered by FCI Lender
Services, Inc., expectations are clear,
relationships are protected, and year-end tax
reporting is simple.
• Monthly payment reminders and statements
• Electronic payment processing and
online account access
• IRS 1098 and INT-1099 tax reporting
• Toll-free customer support
• Optional escrow account (impound accounts)
for property taxes and insurance
With nearly 30 years of experience, FCI
Lender Services Inc. makes it easy and
convenient to keep your Family Mortgage on
track. Monthly statements to both borrowers
and lenders, electronic payment processing,
and annual tax statements help eliminate
awkward conversations and set clear
repayment expectations for both parties.
Lenders can view their loan's status and
payment history by logging into their secure
account. Year-end tax statements detailing
total principal and interest amount paid are
mailed to both the borrower and lender.
This will ensure that borrowers maximize
their annual mortgage interest tax
deduction, and help the lenders properly
report earned interest income.
OPTIONAL ESCROW/IMPOUND SERVICE
FOR PROPERTY TAXES AND INSURANCE
In addition to our standard loan servicing
program, some clients select to set up
escrow/impound accounts to help the
borrower stay on track with future property
taxes and insurance payments. Using the
most recent tax bill and insurance binder for
the property, FCI Lender Services, Inc. will
run an analysis to determine how much
money is needed to fund the escrow account,
and how much to collect each month with the
borrower's regular payments.
FCI Lender Services, Inc. will hold those
proceeds in a trust account and disburse the
scheduled payments to the appropriate
respective authority when due.
9
National Family Mortgage
"Standards" Last Revised on 06/04/2014
National Family Mortgage allows clients to document
Intra-family Mortgages and Deeds of Trust on Single
Family Homes or Condominiums in the following US states:
AZ, AR, CA, CT, FL, ID, IL, IN, KY, MI, MO, MN, MS, NE,
NV, NH, NJ, NM, NY, OR, PA, TX, UT, WA, WI, VA.
(This means the borrower's home being mortgaged is in one of these states.)
Transactions in the following US states may only be
completed in conjunction with a local attorney, title
company, or escrow company:
AL, AK, DE, DC, GA, HI, IA, KS, LA, ME, MD, MA, NC,
ND, OK, RI, SC, SD, TN, VT, WV, WY.
(This means the borrower's home being mortgaged is in one of these states.)
National Family Mortgage does not allow clients to
document transactions involving:
• Properties in CO, MT, OH
• Wrap-Around Mortgages
• Multi-Family Homes
• Cooperatives
• Mobile Homes
• Manufactured Homes
• Lease-to-Purchase
• Vacant Land Mortgages
Agreements
__________________________________________
LET'S GET STARTED!*
AL, AK, DE, DC, GA, HI, IA,
KS, LA, ME, MD, MA, NC, ND,
OK, RI, SC, SD, TN, VT, WV, WY
As we have explained, there will need to be a
transfer of the title to the property from the seller to
the buyer (borrower) in conjunction with the loan.
The title transfer portion of the transaction is
typically handled by a local real estate attorney or
title company. Please note, various laws in the
states above require either an attorney in the state,
or a title company, must handle the notarization
and registration of the mortgage document.
National Family Mortgage is happy to work in
partnership with your local attorney or closing agent
to ensure your National Family Mortgage is a
success.
National Family Mortgage will help coordinate the
registration of your Family Mortgage with your
attorney or title company.
Your National Family Mortgage is now complete!
National Family Mortgage requires that all clients who
wish to document an Intra-family Mortgage through our
system must also adhere to the following Standards:
• At least one lender and one borrower must be an
"Immediate Family Member" meaning, a spouse, child,
sibling, parent, grandparent or grandchild.
This includes stepparents, stepchildren,
stepsiblings and adoptive relationships.
• Intra-family loan interest rate must meet or exceed the
appropriate IRS Applicable Federal Rate (AFR) in
effect at the time of the loan, without exceeding 6.00%.
• Intra-family loan structure must be Amortized (with
optional Balloon) or Interest-Only, for 1 - 30 years.
• Intra-family loan repayment schedule requires monthly
payments, due on the first of every month.
• Intra-family loan payment grace period must be 15 days.
• Intra-family loan late payment fee charged to the
borrower shall be between 1.00% - 4.00%of the
borrower's standard monthly payment amount.
• In addition to National Family Mortgage's one-time $725
fee for service, the following states require mortgage
taxes must be paid at the time of county recording:
AL, FL, GA, HI, KS, MD, MN, NY, OK, TN, VA
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
10
Being on the borrowing side of a private
transaction can be as stressful as being on
the lending side. To help you prepare for the
conversations with your lender, and for the
loan you hope to close, here are three
things you—as the borrower—should know.
• Loans funded to date: Over $220,000,000
Know how a family mortgage can work. Your
request for money might begin as an
informal conversation, maybe even over the
kitchen table. It might also be a phone call
where you bring up the idea and get an
encouraging response. While the first contact
for a private loan should be informal, soon
after you need to demonstrate to your
lender that you have what it takes to be a
good investment. The best way to do this is
to make a plan with your lender to formalize
the loan. Refer to this guide to show how a
family mortgage can work. Be ready to show
your potential lender how National Family
Mortgage can manage the process to make it
as easy as possible. Your potential lender is
more likely to seriously consider your
request if you can alleviate their two
greatest concerns, (1) that the loan will
jeopardize the relationship, and (2) that the
money might be lost. Sharing this guide with
your potential lender will help you do that.
• Total interest kept in family:
Over $101,000,000
• Average rate - July 2014: 3.27%
• Average term - July 2014: 25 years
• Smallest loan to date: $11,100
• Largest loan to date: $1,600,000
Know how a family mortgage can benefit
your lender. In previous pages we have
described several ways that a private loan
can benefit lenders. Make sure you explain
these benefits to your lender.
In summary, these are:
TIPS FOR THE BORROWER
LEARN MORE...
National Family Mortgage
at a Glance
• Get a higher yield than on other
investments.
• Get a steady stream of income from an
investment that is secured by real estate.
• Keep the money in the family.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Depending on how much you know about your
lender's finances, you can discuss these
benefits as they relate directly to your lender’s
circumstances. You should also think through
how to respond logically to objections and
questions that your lender may have. For
example, one typical objection to a request for
a family mortgage is that the loan is a 30-year
investment and many lenders do not want to
tie up their money for 30 years. Most home
buyers refinance or move after 5-7 years, but
there is understandably a certain amount of
11
HOW CAN WE HELP?
WE WOULD LOVE TO WORK
WITH YOUR TRUSTED
FINANCIAL PROFESSIONAL.
nervousness about committing to a 30-year
loan. Explain to your lender that you can
refinance the mortgage at any time with a
bank. They can also add a clause to the
mortgage ensuring that they have a legal
right to demand full payment and effectively
cause refinancing. They can also structure a
Balloon repayment schedule.
These solutions are common.
As a trusted resource for all financial and real
estate professionals, we look forward to
partnering with your estate planner, financial
advisor, tax professional, real estate agent,
or real estate attorney to help make your
family mortgage a success.
Know how a family mortgage can benefit
you. In previous pages we also described the
ways a private loan can benefit borrowers.
Since your lender is probably interested, at
least in part, in being able to help you out,
it’s a good idea to be able to express and
discuss the benefits you receive by getting
your loan from a family member instead of
from a bank.
•
•
•
•
•
•
Manage annual gifting
Lend through a family trust
Build and transfer family wealth
Diversify fixed income investments
IRS 1089 and INT-1099 tax reporting
Protect loans to newly married children
In summary, these are:
• You can set your own interest rate,
which may be lower than a bank would
offer you.
• You can can save thousands of dollars in
loan origination fees generally charged
by institutional lenders.
• You can still get the benefit of a federal
tax deduction for interest paid just like a
traditional bank mortgage.
On this last benefit, note that the loan must
be structured, documented, and recorded as
a private mortgage - rather than an
unse-ured loan that is not recorded with
appropriate government authorities.
We do recommend that you consult your
tax advisor annually regarding any changes
to the tax laws which may affect the ability
to deduct mortgage interest payments.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
12
Making a mortgage loan to a family member can be
a win-win deal — or it can breed resentment and
arguments. That’s why it’s so important to do it
right.
First, you have to view this as a business deal. I’m
assuming your adult children have good credit and
sincere intentions to repay the loan.
Earning interest on the mortgage is probably a
better deal for you, assuming you have plenty of
savings, than simply offering to co-sign a bank
loan. If you’re still ready to make this kind of deal,
it’s extremely important that the arrangement be
properly documented to ensure that the tax
benefits can be taken and so there will be no doubt
that this is a business deal, not a gift. There’s an
easy way to do that.
NationalFamilyMortgage.com specializes in handling
the entire documentation and registration process
for inter-family mortgage loans. Each loan can be
set up with its own unique terms, within IRS
guidelines for appropriate rates.
The online process is simple. Once you’ve filled in
the information, including address, terms of the
loan and contact information, NFM gets the legal
description of the property and draws up the note
and mortgage document. Then the lender (typically
the parent) disburses the money — either through
an attorney or directly to the borrower.
Why go through this process, when you could just
sit down at the kitchen table and draw up a loan
document? IRS rules say the borrower can deduct
the mortgage interest only if the loan is properly
registered on the title and secured as a mortgage.
Plus, having a servicing record of on-time
payments will make it easier to refinance. Most
important, this documentation assures there will
never be any misunderstanding between family
members — or the IRS — about who owes what
and when it must be paid. That’s the Savage
Truth.
- Terry Savage, Chicago Sun-Times
March 15, 2012
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Before delving into a mortgage with a
relative, make sure you take the following
steps. You may also want to discuss the
transaction with your attorney or financial
planner to make sure it is appropriate in
your individual situation.
Document the loan. Creating a legally
binding document is one of the most
important things you can do when handling
a family mortgage transaction.
Many people mistakenly assume that it is
offensive or inappropriate to ask for formal
documentation when arranging to transfer
funds between relatives. In fact, structuring
formal documentation is perhaps one of the
most appropriate things that can be done.
Not only does it protect both parties
financially, but it also preserves the
personal relationship. It can prevent
confusion over repayment start dates,
interest rates, repayment schedules, grace
periods, and other terms of the loan.
If your borrower is reluctant to formalize the
loan with a legally binding document, you
can try one or more of the following
explanations:
TIPS FOR THE LENDER
NATIONAL FAMILY
MORTGAGE IN THE
NEWS...
Your Accountant: Explain to your relative
that your accountant mandates a fully
legally binding agreement before you
create a family mortgage transaction.
The IRS: Explain to your relative the
possibility that you will be audited, and
that you need to have documentation in
order to show that you are setting up a
family mortgage, and not making a
taxable gift.
The Media: Explain that you have heard
several stories recently about
undocumented transactions jeopardizing
family relationships, and don’t want to
take the chance with your own.
Past Experiences: If appropriate, reference past experiences that deal with an
informal loan ending poorly for you and
the other party.
13
LEARN MORE...
HOW DO I DEAL WITH
DEFAULT OF A FAMILY
MORTGAGE?
Understand the tax implications. Any interest
you earn on a private loan is considered
income by the IRS, and therefore is
considered taxable. You may make a gift of
that income, but only up to $14,000 each
year, which is the Annual Gift Tax exclusion
($28,000 if made by a couple; $56,000 if
made by a couple to a couple).
Basically, in the case of default, individual family
lenders have the same rights as a bank. Family
lenders have the option to foreclose if need be.
In practice, we have found that for family
mortgages, lenders and borrowers prefer to
restructure loans rather than foreclose on their
relatives.
National Family Mortgage requires that your
interest rate must be set at least at the
appropriate Applicable Federal Rate in effect
at the time of the exchange of funds
(see our earlier discussion of the AFR).
There are various ways to restructure a family
mortgage to help keep it on track. For example,
the private lender could:
•
Forgive the missed payment completely, in
other words, make a gift of the amount of the
payment. Just be aware that if you exceed
$14,000 in forgiven payments in a year you will
be exceeding your gift tax exclusion for the year,
per IRS regulations.
•
Agree that the borrower will skip a payment
one month and then double up in a later
month.
•
Postpone the entire payment schedule for an
agreed upon period, until the borrower is
able to stabilize his or her financial situation
and resume the payment schedule.
•
Require that the borrower add the payment
to the end of the loan term.
The payment schedule changes listed above
generally do not require a new promissory note.
Payment schedule changes that do require a new
note include a change on loan type
(secured/unsecured), a change in the interest
rate, or a complete restructuring of the payment
schedule from one form to another (such as from
amortized to interest-only.)
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Reflect on your own interests. Before you
agree to a family mortgage with a relative, be
clear about your own interests. Ask yourself
why the possibility of a family mortgage
appeals to you. Is it because you want to
help someone you love? Is it because you’ll
generate a higher return on your investment
than you would in the stock market or in a
savings account? Is it to prevent gift tax
problems? Chances are, it’s a combination of
a few things. Articulate your goals as a lender
and share these with your borrower.
Be sensitive that such a loan might raise
some emotional issues for other family
members, such as jealousy. Some believe the
best approach is to be open with your family
about the loan, and if possible, make a
similar opportunity available to other family
members. On the flip-side, not every relative
is financially responsible or worth this type of
credit risk. What works with one relative
doesn't always work with another. Use your
best judgement.
Clarity in the legal document about who does
what in the case of late payments or default
also prevents a difficult situation down the
road if the loan should turn bad. Certainly, if
you have a spouse, it’s best to discuss the
transaction before signing the papers. Make
sure that you are in agreement about the
terms and expectations of the arrangement.
14
• Create a mortgage agreement, not just
a promissory note.
• Record the mortgage with public
authorities.
• Manage the repayment plan.
• Recalculate the schedule to accommodate
missed payments, late payments, and
partial payments.
• Keep track of interest payments and
prepare year-end tax data.
Usually, a loan such as a mortgage that
takes place over a period of years will bring
different circumstances for each party as the
years pass. Payments could be neglected;
agreements and promissory notes can be
stashed in a drawer or closet so that the
terms are forgotten or ignored. By managing
the entire repayment process of your loan,
including payment processing, online
accounts, and proven methods of payment
collection, National Family Mortgage relieves
you of having to manage your loan and
reduces any stress to the personal
relationship that the loan might cause. We
can provide a buffer, allowing you to keep
your loan separate - and on track - from
your personal relationship.
Q: Do we have to keep track of the interest
income?
A: Yes, you must report to the IRS all interest payments as income for the lender and
deductions for the borrower. A benefit of
using National Family Mortgage's loan
servicing platform is that year end IRS tax
forms are prepared for you.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Q: Why does it matter that I record the
mortgage with public authorities?
A: If your borrower wants to deduct mortgage interest, the mortgage must be
recorded with the relevant registry of deeds.
In the event of a default or an audit, you
must show that your transaction was in fact
legitimate.
Q&A
Q: I’m selling my home to my son. Why
can’t I just download a free promissory note
from the Internet to document the family
mortgage instead of paying for a family
mortgage through National Family
Mortgage?
A: Sure you can. But this is a risky choice. If
you use a simple promissory note, you and
your son will need to do several things on
your own to ensure that you minimize
financial risk, enjoy tax benefits (mortgage
interest tax deduction), and avoid emotional
pitfalls of interpersonal transactions. You’ll
need to:
If you want to write off a defaulted loan or
mortgage as bad debt, you must show that
you did in fact have documentation, that your
transaction was legitimate, and that you did
try to collect on it. This means that you must
keep detailed and accurate records of the
logistics of the loan, including each payment,
interest rates, and other structures. National
Family Mortgage can handle all the aspects of
managing and recording your mortgage so
that you have detailed documentation for
public authorities.
Q: Do you report the borrower's loan
payments to the credit agencies?
A: Not right now, but we're working on it.
Q: My borrower/lender lives outside of
the United States. Can you help us?
A: All borrowers and lenders must have
an address in the United States. To
participate in the loan servicing platform,
all borrowers/lenders must also have US
Social Security or tax ID numbers.
Q: What about an appraisal, lender’s title
insurance, or monthly escrow of taxes
and insurance?
While we will never discourage our
lenders from taking any additional
precautions that may help safeguard
their investment, truthfully, most of our
lenders do not require such “institutional”
underwriting practices as a condition of
their loan. If the lender is familiar with
their borrower’s housing market, perhaps
they forego an appraisal. If the borrower
already has, or plans to purchase, a
buyer's title insurance policy, perhaps
they forgo a separate lender’s policy.
Assuming the borrower is responsible
enough to make their mortgage payment
each month, hopefully, they are also
responsible enough to budget for their
annual property taxes and home owner’s
insurance.
15
Q:What happens if my borrower loses his or
her job?
A: There are a number of unexpected events
during the life of a loan that may take place,
and unemployment for the borrower is one
of them. If the borrower is unable to continue making payments during a period of
financial distress, National Family Mortgage
makes it easy to restructure the loan and
keep it on track to be repaid.
For example, depending on your situation,
you can choose to make the loan payments
interest-only to lower the burden on the
borrower, or you can choose to forgive the
missed payments, spread them out over the
course of the mortgage, or add them to the
end of the term with a balloon payment. In
our experience, this reduces the risk of
foreclosure and helps keep the relationship
intact.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
16
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HOURS OF OPERATION ARE M - F: 9AM - 5PM ET
CALL US AT 1.888.636.1990
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
VISIT: NationalFamilyMortgage.com
CALL TO DISCUSS YOUR
OPTIONS WITH ONE OF
OUR FAMILY MORTGAGE
ADVISORS. IT’S FREE.
WE’RE EXPERTS. AND,
WE'RE VERY NICE, TOO.