Asked by Thompson, Delaware • Tue Jun 29, 2010
I am currently in a year long lease. My parents said they will loan me the money to purchase a home. July '10 applicable federal rates(afr) are under 4% for long term loans. It looks like afr rates will be going up over the next year(for the sake of the questions, lets assume they will). Would I be able to lock in the afr for a home purchase that wouldn't close for over a year? What is the legal limit on the duration of an interest rate lock in? If we are able to lock in the interest rates, what documentation would be needed to ensure the IRS wouldn't view the loan as a gift. I understand that to avoid tax issues there needs to be a promissory note and the current afr needs to be used. I just need to know what additional documentation would be needed for the lock in of the afr. If we lock in the July 2010 rates, would the documentation need to include the amount that is to be borrowed, or can there just be a maximum limit that we can borrow? Any help would be greatly appreciated.
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