Loans for Multigenerational Living

Many of us have borrowed money from a parent or received assistance from parents in making a down payment for a mortgage, but today’s living brings a different case scenario. Mom and Dad want to “rent” or get a loan with the kids for a multigenerational home together. The mortgage industry has looked at such properties as investment properties and typically required a higher down payment. Today, the mortgage industry uses single family guidelines with lower down payments and lower rates.

Today, parents might bring a down payment but no income for the mortgage. The adult children might bring income without assets. The parents might live in the home “free” using the IRS’s gift tax rules, which allow a gift of up to $15,000 a year tax-free to any person. Adult children can each gift $15,000 to each parent totaling $60,000 of rent a year without triggering any federal gift tax. In the eyes of the IRS, waiving rent is the same as gifting money to pay rent.

Here are some tips:

• If you are thinking about renting to your parents, be sure the lender knows. There are often lower rates and required down payments when a family member is the renter.
• Ask your accountant or tax person about how to decide about how to split the tax deduction, because each person on the mortgage may get a statement that indicates total amounts as opposed to individual tax responsibilities.
• Know that renting to family members at a discount is specifically addressed in the tax code regarding landlord deductions, so discuss your plans with a tax expert.

You have many options in buying many kinds of homes in today’s market. It’s a privilege to live and serve in the Greater Clark County area as your neighbor and mortgage advisor.

Please call or email me with your questions at MPattullo@PeakMtg.com

We lend where we live,

Mike