®
®
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
A GUIDE TO
The smart way to
manage mortgage loans
between family members.
FAMILY MORTGAGES
National Family Mortgage
HELPS YOU SET UP YOUR
OWN REAL MORTGAGE WITH
RELATIVES. ALONG THE WAY,
WE'LL HELP YOU BEAT THE
BANK, PREVENT TAX
PROBLEMS, AND SAVE
(OR, EVEN MAKE) THOUSANDS
OF DOLLARS. THEN, WE CAN
ALSO HELP MANAGE YOUR
LOAN, PROVIDE YEAR END
TAX REPORTS, AND KEEP
THINGS BUSINESS-LIKE.
IT SOUNDS GOOD, DOESN'T IT?
IT GETS EVEN BETTER . . .
®
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
1
OUR CUSTOMER BILL OF RIGHTS
2
NATIONAL FAMILY MORTGAGE
3
WHAT IS A REVERSE MORTGAGE?
4
LEARN ABOUT YOUR OPTIONS
5
THE CAREGIVER MORTGAGE
8
®
STANDARDS
12
TIPS FOR THE BORROWER
13
TIPS FOR THE LENDER
15
Q&A
17
CALCULATOR
19
LOAN MANAGEMENT DASHBOARD
21
SAMPLE APPLICATION
24
TABLE OF CONTENTS
ABOUT
NATIONAL FAMILY MORTGAGE
THE LEGAL FINE PRINT
BEFORE WE GET STARTED, WE’D LIKE TO GIVE OUR LEGAL TEAM THEIR MOMENT IN THE SPOTLIGHT.
The materials in this guide should be used for general guidance and informational purposes only and are not geared toward
any specific transaction or goal. Every transaction is unique and questions about your specific loan transaction, its
circumstances, or any recent changes to the laws of your state that might affect your loan should be directed to a licensed
legal or real estate professional in your state. We recommend that you consult an attorney or tax advisor before entering
into a financial transaction of this nature. National Family Mortgage, LLC is not a law firm and does not provide legal
advice or tax advice. National Family Mortgage, LLC is not a lender or a loan broker and does not originate loans on behalf
of other parties. The information contained herein is the sole property of National Family Mortgage, LLC, and may not be
reproduced or redistributed for any purpose without the express written consent of National Family Mortgage, LLC.
®
National Family Mortgage does not offer a solution for every intra-family real estate situation.
Please review our "Standards" on page 12 of this guide, and as also found on our website, for
complete restrictions.
© 2012-2016. National Family Mortgage, LLC. All rights reserved.
67 Leonard Street, Suite 5, Belmont, Massachusetts 02478
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
®
We are not a bank. We are not your
attorney, financial advisor, or accountant.
(Although, we'd love to meet them.) We are
a niche online company that helps protect
families who are borrowing, lending, or
gifting money with relatives to purchase,
refinance, or renovate a home. Our
customers directly invest in and borrow
from family, avoiding the cost and red-tape
of a broken mortgage system.
Real estate loans and financial gifts with
relatives can be a win-win for both sides,
but should be documented properly.
®
National Family Mortgage helps minimize
the legal and federal tax consequences that
can occur when family real estate loans
and financial gifts are documented
improperly – or not documented at all.
Mortgage Loans That Fit You
Loans and mortgages between family and
friends reflect an age-old impulse to lend
a helping hand. They’re typically used for
big life events: to buy a home, to start a
business, to finance an education. But
mixing money and relationships can be
awkward. That’s where we come in.
We help lenders make loans they feel
good about, that prevent tax problems,
that get repaid, and protect relationships.
We help borrowers fund their dreams and
stay on track with record keeping. Our
goal is to make family mortgage lending
and borrowing safe, easy, secure, and
successful.
How We Do It
We take the simple, often overlooked steps
that make sense when you’re doing a loan
with a relative. Mortgage loans can be
especially tricky. Our secret? Experienced,
friendly, and reliable support from our
team - every step of your way.
Structure the loan
Document the loan
Register the loan
Track the loan and provide
year-end tax reports
Hopefully, this guide will give you a clear
understanding about what we do and how
we do it. Then, you can make an informed
decision about our solutions and your
goals. If you ever have any questions,
please give us a call or email us through
our website. We're always here to help.
At the end of the day, we want to make
your family mortgage loan a success and
you happy. Why?
One, so you’ll refer your family and
friends to us. And two, because we really
love beating the banks!
Our team has been doing this for years.
We've helped families across America
manage over $388 million in peer-to-peer
home loans, while keeping over $174
million of interest within familes. We've
been featured on the cover of USA Today,
we've won some pretty big awards, and
we've saved (and even made) our
customers a lot of money.
ABOUT NATIONAL FAMILY MORTGAGE
About National Family Mortgage
®
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
1
FIT.
You have a right to dream big.
You have a right to a mortgage loan that fits
your needs. If we can help, we'll let you
know. If not, we'll let you know that, too.
Flexibility and open communication are
always a good fit.
National Family Mortgage supports the
American dream of home ownership and we
are committed to helping you get and stay
there.
®
FREEDOM.
LOVE.
You have a right to break free from the
tyranny of a corrupt and broken banking
system.
You have a right to use your money to help
the ones you love.
You have a right to build your own bank.
You have a right to choose your own
interest rate. You have a right to invest your
own money where it belongs; in a place that
most benefits you and your family.
Banks will never love you like your family
does.
HONESTY.
VALUE.
You have a right to talk honestly about
money.
You have a right to get more than you pay
for. You have a right to be treated fairly.
You have a right to save a lot of money.
You have a right to learn if a National
®
Family Mortgage is right for you.
Whether you're offering a loan to a
loved one or asking for one, it may be
a little awkward at first. Don't let that
stop you. Speak from the heart. We're
always here to help you.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
OUR CUSTOMER BILL OF RIGHTS
DREAMS.
®
2
®
Just like a traditional bank mortgage, a
®
National Family Mortgage might be used
to buy, refinance, or renovate a home or even as a way to structure a private
reverse mortgage.
®
Making a mortgage loan to a family member can be
a win-win deal — or it can breed resentment and
arguments. That’s why it’s so important to do it
right.
First, you have to view this as a business deal. I’m
assuming your adult children have good credit and
sincere intentions to repay the loan.
Earning interest on the mortgage is probably a
better deal for you, assuming you have plenty of
savings, than simply offering to co-sign a bank
loan. If you’re still ready to make this kind of deal,
it’s extremely important that the arrangement be
properly documented to ensure that the tax benefits
can be taken and so there will be no doubt that this
is a business deal, not a gift. There’s an easy way
to do that.
NationalFamilyMortgage.com specializes in handling
the entire documentation and registration process
for inter-family mortgage loans. Each loan can be
set up with its own unique terms, within IRS
guidelines for appropriate rates.
The online process is simple. Once you’ve filled in
the information, including address, terms of the
loan and contact information, NFM gets the legal
description of the property and draws up the note
and mortgage document. Then the lender (typically
the parent) disburses the money — either through
an attorney or directly to the borrower.
Why go through this process, when you could just
sit down at the kitchen table and draw up a loan
document? IRS rules say the borrower can deduct
the mortgage interest only if the loan is properly
registered on the title and secured as a mortgage.
Plus, having a servicing record of on-time payments
will make it easier to refinance. Most important, this
documentation assures there will never be any
misunderstanding between family members — or
the IRS — about who owes what and when it must
be paid. That’s the Savage Truth.
A National Family Mortgage helps create
a win-win situation for your family.
Lenders generate a solid investment
return at stronger rates than they would
earn in a bond, money market, or a
savings account; borrowers get a lower
interest rate and lower fees than they
would with an institutional lending source.
Many families use National Family Mortgage
to simply prevent IRS tax problems and
estate planning issues. A National Family
®
Mortgage can provide the legal structure
and tax benefits of a bank mortgage with a
flexibility that fosters a win-win mortgage
transaction for everyone.
Best of all, a National Family Mortgage
keeps your money and home equity in
the family.
®
Why pay interest to a bank if you don't
have to? Why not pay the interest to
someone you care about? Why let a
bank take the equity out of your
family home?
This guide is all about how a National
®
Family Mortgage can help you properly
structure a private reverse mortgagelike, family funded, line of credit.
If you want to learn more about how
®
National Family Mortgage can help with
a home purchase, the refinance of a
bank mortgage, or a seller finance
transaction, please go back to our
website and download the appropriate
guide.
WHAT IS A FAMILY MORTGAGE?
NATIONAL FAMILY
MORTGAGE
IN THE NEWS...
®
- Terry Savage, Chicago Sun-Times
March 15, 2012
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
3
WHAT IS A REVERSE MORTGAGE?
®
Financial products that turn home equity into
income have gained popularity in recent
years among retirees. Though the value of
their home may have soared, sources of
income in retirement remain fixed. So, many
are searching for ways to tap into home
equity as a supplemental source of ongoing
income.
For this reason, reverse mortgages have
gained popularity. But, bank products are
constrained by several federal requirements
into a one-size-fits-all approach. For
example, there are age and counseling
requirements, as well as lending limits
determined by age and location.
Generally, institutional lenders also charge
high closing costs, high interest rates, and
insurance fees. Of course, home equity is
lost as it's transferred from the family over
to the lending institution.
For many retirees, the home makes up the
bulk of the wealth they hope to pass on to
younger generations. Whether to generate
cash-flow or as an estate planning tool, the
®
National Family Mortgage, Caregiver
®
Mortgage, offers flexibility in meeting
financial goals and keeping money – and
your home – in the family.
A PRIVATE ALTERNATIVE
WHAT IS A REVERSE MORTGAGE?
Introducing . . .
The Caregiver Mortgage
Our Caregiver Mortgage is a secured line of
credit funded by the relatives of a homeowner.
It allows the homeowner to receive tax-free
cash borrowed against home equity, knowing
that their own family – not an institution – is
building equity in their home. It offers many of
the features and benefits that attract people to
reverse mortgages, but without the costs and
restrictions.
®
Our easy and transparent process is also
designed to facilitate participation and
maintain harmony between siblings and
extended family members.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
4
®
Society talks a lot about paying it forward and
doing something good for someone else, but the
older you get, the more you may find yourself
paying it backward. That is, lending or giving
money back to your parents, who once upon a
time bought you food, clothes, toys, and just
about everything else you needed to get through
childhood.
"Many families are in the precarious situation of
providing financial support to aging parents,
which in some instances, can go on for a decade
or longer," says Timothy Burke, CEO of National
Family Mortgage, a Belmont, Massachusettsbased company that helps family members loan
each other money for mortgages. While most of
the company's loans are from parents to their
adult children, "we're seeing a significant increase
in clients making mortgage loans to their
parents,” he says.
The more money and time you spend on your
parents' needs, the less money and time you'll
have for your own.
So if you have family members, like a brother or
sister, who may be able to help out, do what you
can to enlist their aid early. You want to have
discussions about who will pay for the wheelchair
ramp or the monthly medication before everyone
assumes you will be the only financial caregiver.
Also recognize that you may have some
emotionally difficult days ahead of you. "This can
be incredibly stressful for folks who want to help
their parents but are also concerned about saving
for their own retirement needs," Burke says.
"Stress is compounded when adult children trying
to lend a helping hand become resentful of
siblings who are not willing or able to provide
additional financial support."
LEARN ABOUT YOUR OPTIONS
Like any reverse mortgage product, our
®
Caregiver Mortgage is a potentially long-term
solution that requires thoughtful
consideration of the pros and cons as they
may affect your personal finances and family
relationships. When it comes to family
finances and helping a retired parent, be
prepared to discuss: the borrower's wishes
and needs, inheritance and estate planning
concerns, and the desire to maintain fairness
and harmony between siblings.
®
The Caregiver Mortgage was designed to
provide your family with the legal frame-work
and record keeping that brings peace of mind.
ASK A TRUSTED ADVISOR
National Family Mortgage strongly
encourages you to also discuss your
particular situation with your trusted
estate planner, elder law attorney,
financial advisor, or tax professional to
help determine the best strategy to meet
your family's financial needs.
®
Including your whole family in the
research process can provide
encouragement and support that helps
ensure you consider all of your options.
®
National Family Mortgage wants you to
make a thoughtful, informed decision,
so that you select the best solution for
your family's needs.
LEARN ABOUT YOUR OPTIONS
NATIONAL FAMILY
MORTGAGE
IN THE NEWS . . .
As a trusted resource for all financial
profesionals, we look forward to
partnering with your trusted advisor to
®
ensure your Caregiver Mortgage is a
success!
Be businesslike if you can. Michael Clark, a
certified financial planner in Orlando, Florida, says
"borrowing and loaning money to family members
is a fragile subject," but he advises his clients to
"follow the same rules they'd apply to loaning to
anyone."
- U.S. News & World Report
December 5, 2014
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
5
LEARN MORE . . .
How it all began . . .
LENDER BENEFITS
The creation of the first, modern day reverse
mortgage product is widely credited to
Nelson Haynes of Deering Savings & Loan,
Portland Maine, in 1961.
Haynes designed this very unique type of loan
in order to help Nellie Young, the widowed
wife of his high school football coach, stay in
her home after losing her husband.
Today, the market for reverse mortgages is
still relatively small. In 2012, the Consumer
Financial Protection Bureau reported that only
about 2 percent to 3 percent of eligible
homeowners currently have a reverse
mortgage, and roughly 70,000 new reverse
mortgages are originated each year.
However, reverse mortgages have
the potential to become a much more
prominent part of the financial landscape in
the coming decades. The baby boom
generation (51- to 69-year-olds in 2015)
includes more than 43 million households, of
which about 32 million are homeowners. As
baby boomers retire, many will turn to home
equity in order to supplement their income.
Help a
Loved One
Protect
Relationships
Tax
Protection
A Strong
Investment
Vehicle
Asset
Protection
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Help a loved one enjoy their retirement or
age at home more comfortably:
Providing a structured credit-line to a retired
loved one provides both of you peace of mind.
It affords your borrower the resources and
freedom to adapt their home to changing needs
and to make the most of their retirement. It's
a way to protect the home and keep it in the
family. It empowers you to provide support
that is predictable, flexible, well planned, and
will be repaid.
Tax protection:
Prevent IRS scrutiny. The current IRS annual
gift tax exclusion is $14k per person. In order
for an exchange of family funds to be
considered a legitimate loan and not a
potentially taxable gift, the lender must
properly document the transaction as a loan
and also report earning interest at a rate equal
to or above the minimum rate required by the
federal government, called the Applicable
Federal Rate (AFR). Even if you document the
loan, but report earning less than the
appropriate AFR, the IRS may impute the
annual interest as income and also view the
forgone interest as a taxable gift.
Relationship protection:
Proper documentation sets clear expectations
and prevents future misunderstandings
between family
members. The Caregiver
®
Mortgage encourages sibling participation; our
unique loan management platform allows
lenders to track their disbursements, add notes
or receipts, and calculate year-end tax reports.
Asset protection:
As long as the loan is secured by real estate,
the lender can rest assured that their
investment is protected with a registered
mortgage lien as filed with the proper
government authority. The money you lend
over the life of the loan is due back upon
maturity, the sale of the borrower's home,
or the settlement of the borrower's estate.
A strong investment vehicle:
Family lenders are able to generate a solid
interest rate relative to comparably safe
investments such as money market accounts,
certificates of deposit, treasury notes, and
savings accounts.
®
6
LEARN MORE...
Know the Tax Rules
BORROWER BENEFITS
You can deduct your home mortgage interest only
if your mortgage is a secured debt. A secured debt
is one in which you sign an instrument (such as a
mortgage or deed of trust) that:
Makes your ownership in a qualified home
security for payment of the debt
Provides, in case of default, that your home
could satisfy the debt, and
Is recorded or is otherwise perfected
under any state or local law that applies
In other words, your mortgage is a secured debt if
you put your home up as collateral to protect the
interests of the lender. If you cannot pay the debt,
your home can then serve as payment to the
lender to satisfy (pay) the debt.
If you took out a loan for reasons other than to
buy, build, or substantially improve your home, it
may qualify as home equity debt. There is a limit
on the amount of debt that can be treated as
home equity debt. The total home equity debt on
your main home and second home is limited to
$100,000.
Tax-Free
Cash Income
Tax
Protection
A Low
Interest
Rate
Low
Fees
Protect
Your Home
Flexibility
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Receive a tax-free, cash income stream:
Maintain your financial independence and
standard of living. Bolster a declining investment
portfolio or fund long-term care. Work with your
family to live more comfortably and spend the
money however you choose.
A low interest rate:
Often, interest rates charged through intra-family
arrangements are lower than rates charged
through banks and traditional lending institutions.
®
On average, National Family Mortgage interest
rates are between one half to two full points
lower, and that can add up to thousands of
dollars in interest savings over the life of the
loan. And, your money stays in the family!
Low fees:
Traditional reverse mortgage lenders require high
up-front origination fees, insurance premiums,
property inspections, and on-going service fees
which can be costly. Family lenders typically do
not require these additional expenses as a
condition of making a loan. You can save
thousands in closing costs with a National Family
®
®
Mortgage, Caregiver Mortgage.
Tax deductible interest:
When a home loan from a relative is properly
formalized and registered with the required
government authority, the borrower can deduct
the mortgage interest paid. (Interest is
compounded on institutional reverse mortgages
and cannot be deducted from income taxes until
it is repaid, typically in a lump-sum at the end
of the loan.)
Protect your home:
Why let the bank take back the equity in your
home? One day, if you are unable to repay the
loan when it comes due, it's a relief to know
that your home will remain in the control of
loved ones.
Flexibility:
You qualify as long as your lender trusts you or
your estate can pay back the loan. Cash is
available as needed. A traditional reverse
mortgage application can take weeks of work and
waiting with no guarantee of approval. You set
the loan terms (but within our standards). Try
that with a bank loan!
®
7
The Caregiver Mortgage
®
For a one-time fee of $2,500, National Family
®
Mortgage generates the financing documents for
your Family Mortgage transaction: the promissory
note, the mortgage itself, the legal description, the
projected disbursement schedule, a basic property
report (including an open lien search), and an
electronic property appraisal. National Family
®
Mortgage will also ensure your Family Mortgage is
properly registered with the required goverment
authority.
In addition to our one-time fee for service, the
following states require mortgage taxes must be
paid at the time of government registration:
AL, FL, GA, HI, KS, MD, MN, NY, OK, TN, VA
®
Once your family has agreed that National
®
®
Family Mortgage's, Caregiver Mortgage, is
the right solution for your needs, it's time to
structure your loan.
In this section we outline the steps to set
®
up your Caregiver Mortgage.
These steps are:
Agree to the terms and the projected
disbursement schedule
Create and register a legally binding
mortgage document
Track the loan and annual tax reporting
AGREE ON THE TERMS
®
®
It is the client's responsibility to pay these
additional state specific taxes. We will include an
invoice for any required mortgage recording taxes
when we email the parties their documents for
review.
If your subject property is in one of the states
listed above, please refer to the Standards area of
our website for more information and tax rates.
LOAN TRACKING & ANNUAL TAX REPORTS
Lenders and borrowers will receive unique
login credentials to manage and view their
loan online.
• Track disbursements
• Add notes
• Attach receipts
• View other participant's disbursement
history and records.
• Automatic accounting tracks interest and
generates individual year-end tax reports.
All loan disbursements must be entered into online
management system during the month in which the
disbursement occurred. IT IS THE LENDER'S RESPONSIBILITY
TO ENTER ALL DISBURSEMENTS ON TIME. Disbursements
made in previous months that are not entered on time can only
be entered through NFM technical support. NFM shall be
entitled to a $50.00 administration fee, PER DISBURSEMENT,
for manual entry of each missed disbursement and calculation
of accrued interest.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
THE CAREGIVER MORTGAGE
LEARN MORE...
SO, WHAT DOES ALL
THIS COST?
THE CAREGIVER MORTGAGE
National Family Mortgage's, Caregiver Mortgage,
offers lenders and borrowers unparalleled
flexibility. Our platform has been developed
with realistic family situations in mind and
encourages participation from multiple lenders,
typically adult siblings with households of their
own. Each lender has the ability to set their
individual credit-line that will contribute to the
collective credit-line offered by all of the
participants. While many lenders intend to
extend a fixed monthly disbursement, the
®
Caregiver Mortgage grants the flexibility for
lenders to make disburements whenever needed;
even daily, if necessary.
®
To ensure your Caregiver Mortgage is structured in
a way that is successful and meets your family's
®
needs, National Family Mortgage has created a
one-of-a-kind calculator to help you build your loan.
®
While the Caregiver Mortgage does not require
monthly cash disbursements, our calculator does.
We have discovered that by taking a conservative
approach to structuring your loan, and by assuming
there will be monthly disbursements, families can
ensure they structure a credit-line, interest rate,
and term that will truely meet their needs.
As the tax code requires lenders to report earned
interest on an annual basis, the calculator includes
accrued interest as part of the total credit line.
®
8
SHORT-TERM RATES
For loans up to 3 years
February 2016
.81%
March 2016
.65%
____________________________________
MID-TERM RATES
For loans more than 3 and up to 9 years
February 2016
1.80%
1.47%
March 2016
____________________________________
LONG-TERM RATES
For loans more than 9 years
February 2016
2.59%
March 2016
2.31%
Value of the home
Presumably, your family has a reasonable
estimate of the value on the borrower's
home. When it's time for National Family
®
Mortgage to generate your documents, we
will include an electronic property appraisal
to help guide you.
Borrower's equity position
Does the borrower own their home outright?
Do they still have a small mortgage balance?
Your document package will include a
property report, featuring an open lien
search, to verify lien position and prevent
confusion.
Loan term
How long does your borrower intend to stay
in their home? How old are they? Are they in
good health? Remember, the loan term will
directly affect the loan amount (credit line.)
Loan amount
What are the borrower's cash-flow needs?
What if an emergency comes up that
requires extra cash? If multiple lenders
(households) are contributing, determine
individual credit-lines. Agree upon a
collective loan amount.
Interest rate
The loan agreement will clearly state the
annual interest rate to be charged. The
lender and borrower should pick a rate using
the following guidelines:
®
National Family Mortgage requires all
loans be documented at the proper
Monthly IRS Applicable Federal Rate (AFR)
in effect at the time of the transaction,
with a cap of 6.00%.
Consider the opportunity cost to the lender.
The money loaned would most likely be
earning a return if invested else-where (i.e.,
a savings account or CD). Consider that
alternative and pick a rate that both parties
feel is fair given alternative uses of the
money.
The interest rate you choose can also be an
estate planning tool. The higher the rate,
the more the lender will be owed, reducing
the taxable value of the borrower's estate.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
HOW DO I SET UP A CAREGIVER MORTGAGE?
HOW CAN WE HELP?
CURRENT IRS APPLICABLE
FEDERAL RATES
®
9
REAL PEOPLE USING
NATIONAL FAMILY
MORTGAGE. SEE HOW
KEEPING A HOME LOAN IN
THE FAMILY CAN PAY OFF.
®
“I couldn’t believe how easy the process was
from beginning to end. While I was a little leery
at first about using a non-traditional on-line
processing company, the research I did made
me believe this was the right approach to take in
making a loan within our family. And National
Family Mortgage did not disappoint. The monthly
update and yearly tax documentation completes
the package. Thanks again for this valuable
service.”
- Kevin, New Jersey (Lender)
"Our experience with National Family Mortgage
was excellent. Aside from the great customer
service, one cannot discount the absolutely vital
importance of having a professional handle a
family mortgage. Proper documentation and
protocol are paramount, and it's easy to feel as if
it is acceptable to not do it properly. Thank you
for making the process both legitimate and
painless. It is greatly appreciated."
- Brent, Texas (Borrower)
“A smart mortgage is a family mortgage. My
parents get a great return on their investment
and I get a great rate on my loan. National
Family Mortgage gave me all the tools to make
it happen and it was easy. It’s the best and
most stress-free decision our family ever made
together.”
- Tom, Massachusetts (Borrower)
“National Family Mortage’s online service
made a process that we had some
apprehension about incredibly easy. All of our
questions and concerns were addressed
promptly and everything went very smoothly
from start to finish. I would highly recommend
National Family Mortgage to anyone
considering a family mortgage.”
- Julien, Illinois (Borrower)
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Loan issue date / Initial disbursement
Many loans begin with an initial large disbursement,
followed by regular fixed payments. If the lender is
paying to set up the loan, some families
elect to
®
reflect National Family Mortgage's one-time set up
fee of $2,500 as an initial disbursement. The total
credit line will begin, for all lenders, when an initial
disbursement is made. This does not mean other
lenders are required to make the same cash
disbursement on the same day.
Monthly disbursements
Again, while the Caregiver Mortgage ® does not
require monthly disbursement, budgeting for
monthly disbursements can be extremely helpful in
structuring your overall loan. Please note, the
legal documents do not require the lender to
disburse funds monthly or even at all.
Disbursements are made upon lender's sole
discretion. The lender should be reasonably
confident they can keep up with the projected
disbursement schedule. Plan ahead if big
expenses, on either side of the family, are
predicted to arise during the term of the loan.
Agree to a backup plan in the event the lender is
unable to make disbursements for a time.
Property appreciation rate
Our reverse mortgage calculator offers an
"advanced feature" that allows you to factor in the
subject property's annual appreciation rate and
how this will affect the borrower's equity position
over the life of the loan. The calculator's default
appreciation rate is 0.00%. The historical,
average, annual appreciation rate of US homes is
3.00%.
Cost of living adjustments
Our reverse mortgage calculator offers an
additional advanced feature that allows you to
project annual increases to the monthly
disbursement schedule based on an annual cost of
living increase (COLA). The calculator's default
COLA is 0.00%. Monthly Social Security and
Supplemental Security Income (SSI) benefits for
nearly 64 million Americans increased by 1.70%
in 2015; no increase was scheduled for 2016.
®
10
NATIONAL FAMILY
MORTGAGE AWARDS
®
CREATE A LEGALLY BINDING DOCUMENT
Once all of your loan terms are set, it’s time
to make the agreement legally binding.
®
All National Family Mortgage, Caregiver
®
Mortgages, have three crucial components:
Promissory Note: The promissory note
establishes the legal debt between the
parties and records how that debt is going to
be repaid.
Joint Lender Agreement: In the event your
loan includes multiple lenders (households),
this agreement will record the individual
rights and credit-line of each lender. The
individual credit-lines collectively comprise
the total loan amount.
Mortgage/Deed of Trust: This is the security
instrument through which the borrower
offers their property as collateral to the
lender in exchange for the loan. Attached to
the Mortgage/Deed of Trust is a legal
description of the property, that we will
obtain from the County records. This
document will be legally registered with the
appropriate government authority.
Within seven business days of submitting
your online Application, we will email all
parties their completed mortgage documents
for review and notarized signature. We will
also include an electronic property appraisal
and basic lien search. When necessary, we
will also email documents to your closing
attorney, title company, or closing agent.
When the lender is ready, they may
disburse the funds directly to the
borrower or the appropriate third party.
(i.e., closing attorney, title company,
closing agent, etc.)
Following the notarization of the mortgage,
the parties then return the original
®
documents to National Family Mortgage for
legal public recording at the appropriate
government authority; when necessary, we
will coordinate the recording with your
closing attorney or closing agent. All parties
will be emailed credentials to track their
loan.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Your Caregiver Mortgage is now complete!
®
®
11
National Family Mortgage
"Standards" Last Revised on 04/30/2015
®
LET'S GET STARTED!
AK, AL, CO, DC, DE, GA, HI, IA,
KS, LA, MA, MD, ME, NC, ND, NY,
OH, OK, RI, SC, SD, TN, VT, WV, WY
®
National Family Mortgage allows clients to document
Intra-family Mortgages, Deeds of Trust, and
Security Deeds on Single Family Homes or
Condominiums in all 50 US states.
Transactions in the following US states may only be
completed in conjunction with a local attorney, title
company, or escrow company:
AK, AL, CO, DC, DE, GA, HI, IA, KS, LA, MA, ME, MD,
NC, ND, NY, OH, OK, RI, SC, SD, TN, VT, WV, WY.
(This means the borrower's home being mortgaged
is in one of these states listed above.)
®
National Family Mortgage does not allow clients
to document transactions involving:
• Cooperatives
• Wrap-Around Mortgages
• Manufactured Homes
• Multi-Family Homes
• Mobile Homes
• Lease-to-Purchase
Agreements
• Vacant Land Mortgages
• Properties Held as
Tenants in Common
®
If your National Family Mortgage is being
structured to borrow against a property in one of
the states above, various laws in these states
require either an attorney in the state, or a title
company, must handle the notarization and
registration of the mortgage document. National
®
Family Mortgage is happy to work in partnership
with your local attorney or closing agent to ensure
®
your National Family Mortgage is a success.
Your local attorney or closing agent will collect the
initial funds and disburse them to the borrower or
any desired appropriate third party.
National Family Mortgage will help coordinate the
registration of your Family Mortgage with the proper
government authorities.
®
__________________________________________
®
National Family Mortgage requires that all clients who
wish to document an Intra-family Mortgage through our
system must also adhere to the following Standards:
• At least one lender and one borrower must be an
"Immediate Family Member" meaning, a spouse,
child, parent, grandparent, grandchild, sibling, aunt,
uncle, niece, or nephew. This includes step and
adoptive relationships.
• Intra-family loan interest rate must meet or exceed the
appropriate IRS Applicable Federal Rate (AFR) in
effect at the time of the loan, without exceeding 6.00%.
• Intra-family loan structure must be Amortized (with
optional Balloon) or Interest-Only, for 1 - 30 year term.
• Intra-family loan payment grace period must be 15 days.
• Intra-family loan late payment fee charged to the
borrower shall be between 1.00% - 4.00% of the
borrower's standard monthly payment amount.
• In addition to our one-time fee for service, the
following states require mortgage taxes must be paid
at the time of county recording:
AL, FL, GA, HI, KS, MD, MN, NY, OK, TN, VA
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
12
TIPS FOR THE BORROWER
• Loans funded to date: Over $388,000,000
Being on the borrowing side of a family
mortgage can bring as many questions as
being on the lending side. To help you
prepare for a conversation with your
lender, here are three things you—as the
borrower—should know.
• Total interest kept in family:
Know how a family mortgage can work.
®
Over $174,000,000
• Average rate - January 2016: 3.12%
• Average term - January 2016: 23 years
• Smallest loan to date: $11,100
• Largest loan to date: $2,000,000
TIPS FOR THE BORROWER
LEARN MORE...
National Family Mortgage
at a Glance
Your request for help might begin as an
informal conversation, maybe even over the
kitchen table. It might also be a phone call
where you bring up the idea and get an
encouraging response. While the first contact
for a private loan should be informal, soon
after you need to demonstrate to your
lender that you have what it takes to be a
good investment. The best way to do this is
to make a plan with your lender to formalize
the loan. Be ready to show your potential
®
lender how National Family Mortgage can
manage the process to make it as easy as
possible. Your potential lender is more likely
to seriously consider your request if you can
alleviate their two greatest concerns,
(1) that the loan will jeopardize the
relationship, and (2) that the money might
be lost. Refer to this guide to show how a
family mortgage can work.
Know how a family mortgage can benefit
your lender.
In previous pages we have described several
ways that a private loan can benefit lenders.
Make sure you explain these benefits to your
lender. In summary, these are:
- Higher yields than on other investments.
- Asset protection secured by real estate.
- Money remains in the family.
Depending on how much you know about
your lender's finances, you can discuss these
benefits as they relate directly to your
lender’s circumstances. You should also think
through how to respond logically to
objections and questions that your lender
may have.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Of course, we're always here to help!
®
13
HOW CAN WE HELP?
WE WOULD LOVE TO WORK
WITH YOUR TRUSTED
FINANCIAL PROFESSIONAL.
As a trusted resource for all financial and real
estate professionals, we look forward to
partnering with your estate planner, financial
advisor, tax professional, real estate agent,
or real estate attorney to help make your
family mortgage a success.
•
•
•
•
•
•
Manage annual gifting
Lend through a family trust
Build and transfer family wealth
Diversify fixed income investments
Payment records and annual tax reporting
Protect loans to retired parents
Know how a family mortgage can benefit you.
In previous pages we also described the ways a
private loan can benefit borrowers. Since your
lender is probably interested in helping you,
too, it’s a good idea to be able to express and
discuss the benefits you will receive by getting
your loan from a family member instead of
from a bank.
• You can set your own interest rate, which
may be lower than a bank would offer you.
• You can can save thousands of dollars in loan
origination fees, insurance premiums, and
service fees charged by institutional lenders.
• You can protect your home and keep money
in your family.
• You can still get the benefit of a federal tax
deduction for interest paid just like a
traditional home equity loan.
On this last benefit, note that the loan must be
structured, documented, and recorded as a
private mortgage - rather than an unsecured
loan that is not recorded with appropriate local
authorities.
We always recommend that you consult your
tax advisor annually regarding any changes to
the tax laws which may affect the ability to
deduct mortgage interest payments.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
14
®
TIPS FOR THE LENDER
Before delving into a mortgage with a
relative, make sure you take the following
steps. You may also want to discuss the
transaction with your attorney or financial
planner to make sure it is appropriate for
your individual situation.
Document the loan. Creating a legally
binding document is one of the most
important things you can do when handling
a family mortgage transaction.
Many people mistakenly assume that it is
offensive or inappropriate to ask for formal
documentation when arranging to transfer
funds between relatives. In truth,
structuring formal documentation is one of
the most appropriate things that can be
done. Not only does it protect both parties
financially, but it also preserves the
personal relationship. It can prevent
confusion over repayment start dates,
interest rates, repayment schedules, and
other terms of the loan.
If your borrower is reluctant to formalize the
loan with a legally binding document, you
can try one or more of the following
explanations:
TIPS FOR THE LENDER
NATIONAL FAMILY
MORTGAGE IN THE
NEWS...
Your Accountant: Explain to your
relative that your accountant mandates a
fully legally binding agreement before you
create a family mortgage transaction.
The IRS: Explain to your relative the
possibility that you will be audited, and
that you need to have documentation in
order to show that you are setting up a
family mortgage, and not making a
taxable gift.
The Media: Explain that you have
heard several stories recently about
undocumented transactions jeopardizing
family relationships, and don’t want to
take the chance with your own.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Past Experiences: If appropriate,
reference past experiences that deal
with an informal loan ending poorly for
you and the other party.
®
15
LEARN MORE...
HOW DO I MANAGE
MY LOAN?
Our Caregiver Mortgage Manager ensures family
expectations are clear, relationships are protected,
and year-end tax reporting is simple. It's included
with your purchase!
• Individual and group reports
• Annotate disbursements
Understand the tax implications.
Any interest you earn on a private loan is
considered income by the IRS, and therefore
is considered taxable. You may make a gift
of that income, but only up to $14,000 each
year, which is the Annual Gift Tax exclusion
($28,000 if made by a couple; $56,000 if
made by a couple to a couple).
®
National Family Mortgage requires that
your interest rate must be set at least at
the appropriate Applicable Federal Rate in
effect at the time of the exchange of funds
(see our earlier discussion of the AFR).
• Upload and attach images and receipts
Reflect on your own interests.
• Individual annual tax reports
Before you agree to a family mortgage with a
relative, be clear about your own interests.
Ask yourself why the possibility of a family
mortgage appeals to you. Is it because you
want to help someone you love? Is it because
you’ll generate a higher return on your
investment than you would in the stock
market or in a savings account? Is it to
prevent gift tax problems? Chances are, it’s a
combination of a few things. Articulate your
goals as a lender and share these with your
borrower.
• Payoff statements
Be sensitive that such a loan might raise
some emotional reactions with other family
members. Some believe the best approach is
to be open with your family about the loan,
and if possible, make a similar opportunity
available to other family members. On the
flip-side, not every relative is financially
responsible or worth this type of credit risk.
What works with one relative doesn't always
work with another. Use your best judgement.
Clarity in the legal documents about rights
and responsibilities will prevent confusion and
misunderstanding between family members
when it's time for the debt to be repaid. Of
course, if you have a spouse, it’s best to
discuss the transaction before committing to
anything. Make sure that you are in
agreement about the terms and expectations
of the arrangement.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
16
Q: How much money can the homeowner
borrow?
®
A: The only limit on our Caregiver Mortgage
is the amount the lender is willing to lend.
Our calculator helps you select an amount
based on a variety of factors, including:
• Value of the property
• Monthly cash-flow needs
• Term
In addition, our calculator takes into account
appreciation of the property, annual cost of
living adjustments, and allows you to pick
conservative or generous assumptions for
loan term and loan-to-value ratios. National
®
Family Mortgage recommends that the loan
amount not exceed 65% of the value of the
property, but the loan to value (LTV) is
ultimately up to you (although, state specific
limits may apply.)
Q: Will the homeowner be free to use the
money without oversight from the lender?
A: With a traditional reverse mortgage, the
answer is a resounding "yes"! The money
can be used for anything from home
improvements to supplemental income to
vacations with grandkids –the bank doesn’t
®
care. If you choose our Caregiver Mortgage,
the borrower should also be able to use the
disbursements without oversight. Money
that seems to come with strings attached
might cause family stress or conflict.
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
Q: Will payments continue if the borrower
exceeds the value of the home?
A: Reverse mortgage lenders impose
lending limit caps to avoid this outcome.
®
However, the Caregiver Mortgage is a
private agreement and you are largely free
to implement your own financial terms.
®
National Family Mortgage recommends
that the loan amount not exceed 65% of
the value of the property, but the LTV is
ultimately up to you (although, state
specific limits may apply.) As a family
matter, you may choose a disbursement
schedule that – in the final years - comes
near to or exceeds the value of the
mortgaged property. In this case, make
sure all parties agree that disbursements
will be made, even if they exceed the value
of the property and are essentially gifts.
Q&A
Q: Does the borrower or the lender submit
®
the Caregiver Mortgage Application? Who
pays for it?
A: Either the borrower or lender may submit
our online Application. If multiple lenders
(households) are participating in the loan,
only one party is required to submit the
Application. Our one-time $2,500 fee is
collected via credit card during the online
check-out. Typically, set up costs are paid by
the borrower. If the lender pays the set up
fee, we offer the option to then show the
payment of the loan cost as an initial
disbursement, to ensure that when the loan
comes due it covers the lender’s set up cost.
Q: How will the lender’s lien against the
home be treated in the
estate?
®
Caregiver Mortgage loans are often
intricately tied to the estate plans of the
homeowner. Be sure that the lender’s hard
earned stake in the equity of the property is
not considered their “share” of the estate.
Likewise, the residual estate includes any
remaining equity in the property beyond the
loan amount. This could become a problem.
For example, the heirs might find that they
cannot sell the home to get their residual
share because the lending party has a claim
against the majority of the home and
refuses to sell. Involving an estate planning
advisor or attorney is recommended,
especially if the loan constitutes a significant
part of the homeowner’s estate.
Q: Does the borrower
qualify for a
®
Caregiver Mortgage if they still have a
regular mortgage?
Yes. The borrower can use the Caregiver
®
Mortgage income to make payments on
remaining debt on the property.
However,
®
the Caregiver Mortgage will be a
subordinate lien. Alternatively, consider
scheduling an initial disbursement large
enough to pay off your existing mortgage.
®
17
Q:When does the Caregiver Mortgage get
repaid?
A: The line of credit becomes due and must
be paid in full when one of the following
conditions occur:
®
Q: My borrower/lender lives outside of
the United States. Can you help us?
A: All borrowers and lenders must have
an address in the United States. To
participate in the loan servicing platform,
all borrowers/lenders must also have US
Social Security or tax ID numbers.
• The last surviving borrower passes away
• The last surviving borrower sells the home
• The term of the credit-line ends
Q: What exactly gets repaid?
A: When any one of the above three
conditions occur, the principal and
outstanding interest become due to the
lender. Note that the homeowner can pay off
the loan in cash, and is not required to
transfer ownership of the property, unless the
loan can not be repaid by other means.
If the lender does not receive repayment, the
lender then can claim a share in the property
equal to the amount due from the line of
credit. Any remaining equity in the property is
still owned by the estate or other heirs. The
exact proportion of ownership is determined
at that point by either an appraisal or a
foreclosure sale.
Q: What about an appraisal or lender’s
title insurance?
While we will never discourage our
lenders from taking any additional
precautions that may help safeguard their
investment, truthfully, most of our
lenders do not require such “institutional”
underwriting practices as a condition of
their loan. If the lender is familiar with
their borrower’s housing market, perhaps
they forego an appraisal. If the borrower
already has a buyer's title insurance
policy, perhaps they forgo a separate
lender’s policy.
Q: Are there tax consequences?
®
A: Disbursements from a Caregiver Mortgage
are considered a loan advance, not income,
and therefore are not considered taxable by
the IRS. The lender is required to report
taxable earned interest, as miscellaneous /
ordinary income, on an annual basis.
Q: If the borrower has a Caregiver Mortgage
and decides to apply for Medicaid do they
need to worry about the mandatory 60 month
"look-back" period?
A: If large, lump sum disbursements have
been made and are sitting in their bank
account, Medicaid requires use of available
cash-funds on long-term care before they can
qualify for Medicaid assistance. The equity in
their primary residence (minumum $536K) is
generally exempt from this spend-down
requirement. If credit is disbursed and spent
monthly, there should be no conflict. National
®
Family Mortgage encourages you to discuss
your particular situation with your trusted
estate planner, financial advisor, or tax
professional to help determine the best
strategy to meet your family's financial needs.
®
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
®
18
CALCULATOR EXAMPLE "A"
________ Borrower's estimated home value.
________ Credit Line defaults to 65.00% of Borrower's Home Equity.
Loan amount can be adjusted as neccessary.
________ Projected standard monthly cash disbursement to Borrower.
________
Project loan term (credit line availablity).
________
Fixed interest rate over projected loan term.
________
Initial monthly cash disbursement date.
________
Calculator default setting assumes Borrower's Home Equity position is
________ 100%. If there are existing liens on property, adjust field as neccessary.
Calculator default setting assumes initial cash disbursement equals
standard monthly disbursement. Field can be adjusted as required to
*
®
include Caregiver Mortgage set up fee, or other large disbursement.
*
* Calculator default settings for Annual Home Value Appreciation and
Annual Cost of Living Increase equals zero. These fields can be
adjusted as required and are featured in the next example on
following page.
Lender will have earned a total of
$13,632.24 of interest over the
______________________________________________ seven year term of the loan.
The IRS tax code requires noninstitutional Lenders to report
taxable earned interest on an
annual basis.
__________________________
After initial $1,000 disbursement
made on March 1, 2015, -- $3.54
of interest accrues over the
month and is owed by the
Borrower on April 1, 2015. The
________________________________________
Lender is required to report
earning this interest in 2015.
Accrued interest is added to the
principal balance as a loan
disbursement at the end of each
month and applied toward the
total credit line.
By February 2022, Lender has
made $83,867.76 of monthly
_____________________________ cash disbursements, plus
$13,632.24 of accrued interest,
thereby reaching total credit
line of $97,500
19
CALCULATOR EXAMPLE "B"
Generally speaking, try and structure a loan where both the
credit line and term exceed the borrower's anticipated
needs. This way, should the borrower need more money
than intially planned, or should the loan run longer than
initially expected, there will be a "safety cushion".
There is a downside to this strategy if the borrower's home
is in a state with a mortgage recording tax. You will pay a
registration tax based upon a credit limit that may never
actually be reached.
*
*
* The only difference between this Calculator example and the one on
the preceding page, is that we've added an Annual Home Value
Appreciation rate of 3.00% and we've added an Annual Cost of
Living Increase of 1.70%.
On the March 1, 2016, the anniversary
date of the first cash loan disbursement,
the standard monthly disbursement
reflects the annual Cost of Living
Increase of 1.70%. Likewise, on this
anniversary, the Borrower's home value
reflects an annual appreciation rate of
_____________________________________________________ 3.00%.
________________________________
______________________________
Over credit line
As a result of the 1.70% annual Cost of
Living Increase, the credit line has
reached its $97,500 limit three months
earlier than the desired seven year
term achieved in the sample
calculation on the previous page. As
the credit limit has been reached,
monthly cash disbursements will end.
The schedule continues to run the
desired seven year term, and interest
continues to accrue, as reflected in red.
Experiment with the calculator to
ensure you structure a credit line
and term that will meet your family's
needs.
20
LOAN TRACKING FEATURES
21
22
23
24
25
26
HOURS OF OPERATION ARE M - F: 9AM - 5PM ET
TO GET STARTED SETTING UP YOUR FAMILY
MORTGAGE TODAY, PLEASE VISIT:
NationalFamilyMortgage.com
OR CALL 1.888.636.1990, M-F, 9am-5pm ET
CALL US AT 1.888.636.1990
®
VISIT: NationalFamilyMortgage.com
CALL TO DISCUSS YOUR
OPTIONS WITH ONE OF
OUR FAMILY MORTGAGE
ADVISORS. IT’S FREE.
WE’RE EXPERTS. AND,
WE'RE VERY NICE, TOO!