Question owner mortgage income?

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My husband and I live in a house belonging to my sister. We live in Illinois. We do not want to buy the house from him. He wants us to purchase $ 20,000 worth of property income, which will help us achieve the 20% deposit. Can anyone tell me how to write a letter, or if there are tax implications of this type of transaction? Thank you!

2 Comments
  1. Reply
    Yanswersmonitorsarenazis
    January 25, 2011 at 3:33 pm

    It’s not sweat equity. That’s the term if you had put physical labor into the home to increase it’s value.

    This is a gift of equity. She should be able to give you $ 12,000 each and avoid any risk of gift tax. Consult a tax professional for more details on that. I’m not a CPA.

    In most cases, you have to put 5% of your own money into the deal if your down payment will be less than 20%. If more than 20%, it can be all gift. If you’re less than 20% and you don’t have 5% of your own money, your loan officer will have to sell the loan to Freddie Mac and do an 80% first mortgage, and a second mortgage for the remainder.

    Your lender will provide you with their standard gift letter. They all have one.

  2. Reply
    Anthony Theriault
    January 25, 2011 at 3:46 pm

    I would recommend your sister set the contract up where she would pay a 6% seller concession towards the closing costs.

    Example:
    Home Price: 250K
    Seller Contributes a 6% concession: 15K for closing.
    Upon transfer of transaction remaining gift from sister of 5K to you.

    With the sales price, and the remainder of what she will make off of the house she can give you the remaining as a cash gift;

    Generally, you do not need to file a gift tax return unless you give someone, other than your spouse, money or property worth more than the annual exclusion ($ 11,000 in 2002, 2003, 2004 and 2005; $ 12,000 beginning in 2006) for that year. Although a return may be required, no actual gift tax will become payable until the cumulative lifetime taxable gifts exceed the applicable exclusion amount. The donor is primarily responsible for the payment of the Gift Tax.

    I hope this answered your questions!
    Regards,

    FinanceYourWay.com

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