Posted on: 16th Nov, 2009 09:38 pm
I am considering purchasing my sister's home on an owner financing basis. My sister has a mortgage on the home which will not be paid off when we take possession of the property. The way we are structuring the agreement is such that we will make monthly payments in the amount of her current monthly mortgage payment. The principal that is paid down (and any market value equity increase through the contract period) will be considered as our "down payment" at such time as I am in a position to take a mortgage in my own name. My questions are 1) is the Contract for Deed technically a mortgage and would this not cause conflict with the current holder of her mortgage? 2) who benefits from the interest deduction for tax purposes? 3) do I have to have a homeowner's insurance policy or a renters policy?
hi kurt,
the ownerfinancing is not exctly a mortgage. it is a kind of agreement or contract. it will not conflict with the current mortgage holder because the contract does not put a lien on the property. it is the lender who has a lien on the property and only he has the right to foreclose on the property. as long as the mortgage payments are made on time, the lender will not have any problem.
in order to claim the mortgage interest deductions for tax purposes, you will have to have your name on the mortgage documents. thus, until you refinance the loan in your name, you will not be able to claim mortgage interest deductions. you do not need renter's insurance policy, but you should have homeowner's insurance policy. if the mortgage payments already include the insurance premiums, you do not have to pay extra for the insurance.
thanks,
jerry
the ownerfinancing is not exctly a mortgage. it is a kind of agreement or contract. it will not conflict with the current mortgage holder because the contract does not put a lien on the property. it is the lender who has a lien on the property and only he has the right to foreclose on the property. as long as the mortgage payments are made on time, the lender will not have any problem.
in order to claim the mortgage interest deductions for tax purposes, you will have to have your name on the mortgage documents. thus, until you refinance the loan in your name, you will not be able to claim mortgage interest deductions. you do not need renter's insurance policy, but you should have homeowner's insurance policy. if the mortgage payments already include the insurance premiums, you do not have to pay extra for the insurance.
thanks,
jerry
Thanks Jerry. One last question. If we are paying the property taxes, do we get the tax benefit?
Hi,
You need to be on the deed to the property in order to claim the tax deductions for property taxes. Unless your name is not on the title, you will not be able to take advantage of the tax benefits. Only those listed on the title can claim deductions for property taxes.
You need to be on the deed to the property in order to claim the tax deductions for property taxes. Unless your name is not on the title, you will not be able to take advantage of the tax benefits. Only those listed on the title can claim deductions for property taxes.
Jerry
I have to disagree with you. Owner financing IS a mortgage. The owner SHOULD put a lien on the property. Owner financing should only occur when the owner owns the property in full WITHOUT any existing mortgages.
What Kurt is proposing is dangerous. Making payments to the seller who may or may not also make a payment to the lender??? What if that owner walks away and never sends the money and the bank forecloses? Where are you then? If you plan to proceed with this, I would insist that you may the payments to the lender directly so you are SURE that mortgage is getting paid. I would also use an attorney to sort through this mess. The deed better be in your name.
I have to disagree with you. Owner financing IS a mortgage. The owner SHOULD put a lien on the property. Owner financing should only occur when the owner owns the property in full WITHOUT any existing mortgages.
What Kurt is proposing is dangerous. Making payments to the seller who may or may not also make a payment to the lender??? What if that owner walks away and never sends the money and the bank forecloses? Where are you then? If you plan to proceed with this, I would insist that you may the payments to the lender directly so you are SURE that mortgage is getting paid. I would also use an attorney to sort through this mess. The deed better be in your name.
