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Hello. I'm new to this whole thing so bear with me.
I plan on buying a home in Chicago (not soon but within a year I will be 100% in the market to buy) and have my mom and possibly aunt and uncle also live there and pay the mortgage, and utilities. They both currently own Condos, and I live out of state.
Are there any legal or tax issues regarding this? Like should I name them as a tenant for tax purposes and what they pay as income??
This isn't in any way, shape or form to "protect" myself from non-payment as they will be able to afford it. And given some catastrophe or terrible event, I will have the ability to cover the costs or move back to Chicago if I have to.
It's just merely to question whether there is a legal/tax problem to this. Will it throw off the taxman??
They will also possibly help with a down payment after they sell their condos, but that is just a maybe. Not necessarily needed.
Since you're not going to live in the property, then you would be buying the house an an investment property. In that case, anyone who lives there, family or not, is a tenant. If you give someone the right to live in your home, then they are legally tenants.
That means you keep careful records, give out receipts, etc. and report any tenant income to the IRS. Your tax accountant can tell you how to deal with mortgage deduction, any repairs, depreciation on the house for your yearly return.
If you try to buy the house as an owner occupier, but never intend to live there, then you are committing mortgage fraud. And yes, lenders are getting tough about checking after the sale closes.
Checking how, like coming by once randomly to check within 60 days or coming by once a week or once a month for a certain time? Once every year until it's paid in full? Once a week until it's paid in full?
I don't see how they could check for a substantial time period without wasting their own time. I'd have my car there, registered in my name parked in the garage/driveway, all my bills sent there, a room with a bed with my clothes and shoes.
So they come at like what 8-5? Even if I lived there, I would barely be home during business hours. In fact, when I lived in Chicago, there were times when I was out of the house 7 days a week for at least 8 hours.
Checking how, like coming by once randomly to check within 60 days or coming by once a week or once a month for a certain time? Once every year until it's paid in full? Once a week until it's paid in full?
I don't see how they could check for a substantial time period without wasting their own time. I'd have my car there, registered in my name parked in the garage/driveway, all my bills sent there, a room with a bed with my clothes and shoes.
So they come at like what 8-5? Even if I lived there, I would barely be home during business hours. In fact, when I lived in Chicago, there were times when I was out of the house 7 days a week for at least 8 hours.
What address are you using to file your tax return? Is it going to be this address? How's that gonna work when the address on your w-2 says something else? And if you expect your employer to play this game along with you, think again.
It's fraud, plain and simple. Tax fraud and mortgage fraud. I know you don't like that answer. Nevertheless, you asked the question and that's your answer.
EASY solution: Buy the place in Chicago using an investor loan, which is what you are. No fraud there. You will pay a slightly higher interest rate and it will require more down payment money. That can be gifted to you by the relatives, if necessary. Then, they pay you rent, you pay the bills. You pay taxes on the income of the rent, but get the deductions and depreciation from being a landlord. You get the eventual capital appreciation (hopefully) when you sell the place. Contact a CPA for full details before you take one step further in this plan.
I don't plan on selling it ever. It's going to be a permanent property for my family, a place to garage some cars, a fallback place for me to live, and a credit builder.
I'll look into the investor loan. My intention isn't really to avoid any additional costs or taxes; my intention is to have it in my name, not someone elses, that's all. I still have time before anything starts to happen, like next Summer/Fall but hopefully I'll qualify for an investor loan.
I don't plan on selling it ever. It's going to be a permanent property for my family, a place to garage some cars, a fallback place for me to live, and a credit builder.
I'll look into the investor loan. My intention isn't really to avoid any additional costs or taxes; my intention is to have it in my name, not someone elses, that's all. I still have time before anything starts to happen, like next Summer/Fall but hopefully I'll qualify for an investor loan.
Thanks guys.
You'll need to build that credit BEFORE you get the mortgage loan, not use the mortgage loan to get the credit built.
Also keep in mind that if you ever plan on buying a place for yourself or your own family (wife, kids, etc.), having this mortgage will probably make qualifying for another mortgage more difficult. You'll have debt to income ratio's to overcome that may be too high. You really should consider this before getting into this kind of transaction. You can always rent storage space for your cars (or better yet, get rid of cars that you can't use).
I don't think I'd have a problem getting the loan based on where [I hope] my credit will be by the time I'll be looking to buy, and what debt I'll have (which will be close to zero).
Currently my credit is at a point where I can/have financed 3 cars, get decent credit limits on credit cards, etc. Generally good, not great.
I've never had it to where my credit was upper echelon, spotless, and a good, long history, which I understand to be of high importance.
So since this will be a long term loan, it'll definitely help build my credit to a point where it's high up. Right?
Yeah, it's going to be hard, I know that.
I may have to do it the other way around, which is buying a house for myself first, since there are several in my current area, Mid TN, that are smaller houses, but large enough to be anywhere from 2-4 bedrooms for under 100,000. Houses that I'll be looking at in Chicago will probably range anywhere from 200,000 to 450,000.
I don't mean to sound like a knowitall or arrogant, but I'm going to go forth in this manner, buying a house in Chicago. [Obviously my ducks have to be in a row first].
I have future plans and the house fits into them.
And it's not just storing the cars, maybe I shouldn't have regarded that so high, though that will be a benefit for me. My GF and I only have 3 cars. 1 that is being financed, with about 7-8k left on the loan currently, that she daily drives to work and school, the other 2 were bought for 1500 and 900 each, and would be worth to a buyer probably less. The first is my daily and costs minimal as it's decent on gas and cheap to insure and the 2nd is not worth it in my book to sell as it's stored in my garage in my apartment currently with no insurance, no current registration, therefore costing me only the money I use to fix it up, which is my hobby.
Again, thanks for the help. Sorry for sounding dumb or arrogant. I'm learning all I can and will be much more educated (self and from advisers) by the time I am ready to buy.
And I'm taking all advice from you guys!
Oh, and another question. So I'm going to do an investor loan or whatever...
Let's say I own a house out of state that is 100,000 that I live in and no other debt/loans whatsoever.
What kind of chances would I have getting the loan in Chicago for a house say, anywhere between 250,000 to 350,000 with a 10% down payment or 20% down payment and generally overall good credit, 99% payment history over 2 years, 5 years average credit age, 1% utilization, fully recently paid auto loan, 1 derogatory in 7 years?
Also, is it possible to use a potential guaranteed lease as leverage in getting approved for the loan? Like let's say my relatives sign a 3 or 4 year lease on the contingent I get approved, and I get approved on the contingent that I have a guaranteed 4 year lease to start? I would google this question, but I don't even know what to search for.
And in this case, obviously the bank can't just take people's word for it, but I'm fully confident that my mom/relatives will continue to live there long term. It's not really a "gamble" for me, of course life is never guaranteed, but just a way to have my name on the loan. And what other ways can I prove to the bank that I'm not taking a big risk? Does area play a factor in investor loans? Like a high demand area that won't exactly be short tenants?
What are usually terms for an investor loan? 30 years?
Thanks guys.
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