I am looking at buying a home and have some questions regarding being able to lock in afr rates to obtain the loan through a family member.

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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Thompson, Home Buyer, Delaware
Wed Jun 30, 2010
I guess you don't understand intrafamily mortgages but why would you? You don't profit off these so you don't know what you're saying. They will loan me the money. They're not buying the house. Also they can't just pick any interest they want, it has to be at least the current afr or the IRS views the loan as a gift.
0 votes
Chris Lyon, Agent, Venice, FL
Wed Jun 30, 2010
What your asking doesn't make much sense. You can not lock in a rate if your parents are buying a home. What they can do is buy the home and sell it to you and they can set the interest rate at whatever they want to and then record the mortgage.
0 votes
Thompson, Home Buyer, Delaware
Wed Jun 30, 2010
I'm talking about locking the rate with my parents. They have cash, they won't be borrowing. I'm sure they won't charge me extra to lock in. I guess you didn't understand what I was saying. Thanks though
0 votes
Patricia Wolf, Agent, Hockessin, DE
Wed Jun 30, 2010
Absolutely not.... there is no affordable way to lock rates for 12 months. The lenders will charge rate lock fees that will surely exceed the savings. Some leases have an escape clause for home purchases. Check out your options with an attorney.
0 votes
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