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Can I charge 0 percent interest for a owner financed mortgage? The idea is that I can charge a higher price 80000 dollars to max the tax credit. normal selling price would be 46000. Any thoughts or insights.

Niicss · Posted: Tue Oct 20, 2009 1:37 am Post subject:

In an owner financing, there would be an agreement between you and the buyer. You can charge the interest rate as mentioned in that agreement.

gmakerley · Posted: Tue Oct 20, 2009 10:43 am Post subject:

do what you wish to do - the marketplace sets values on homes, so you won't have any governmental agencies coming at you or your buyer questioning the price. just be sure you have all your i's dotted and t's crossed.

thewretched02 · Joined: 23 Jun 2009 Posts: 115 23.92 Dollars($)

If the buyer will agree to the infalted price then I don't see why not.

thewretched022 · Joined: 21 Oct 2009 Posts: 18 3.29 Dollars($)

I'm not sure I get the point of this - increase the price to get a tax break?

jveenstra · Posted: Thu Oct 22, 2009 1:27 pm Post subject: Purchase

Interesting game plan.

If someone had a $46,000 mortgage at 6%, just for discussion sake, the monthly principal and interest payment would be $275.
If that same person had a 30 year mortgage at 0% interest rate for $80,000, the monthly PRINCIPAL payment would be $222.

The only glitch I see is that the federal government has a minimum interest rate requirement. That is probably around 4% give or take a little. They do not say you can not charge a lesser interest rate. They do say that you must report note interest income based on the required minimum rate on the date the mortgage was started. That means that even you are are collecting zero interest, the federal tax regulations require you to pay taxes as if you were earning interest at 4%.

Probabaly not a show stopper and I have absolutley no idea how the government would find out.
I have no idea what state laws are i this regard.

mrripper · Joined: 22 Oct 2009 Posts: 12 2.65 Dollars($)

Wouldn't the interest on a 46K mortgage over 30 years wind up to more than 80K?

eric1 · Posted: Thu Oct 22, 2009 9:41 pm Post subject:

Yes over 30 years at a rate of 6%, you would pay a total of $99k in payments.

I am not sure that I like this method for you for a couple of reasons..
1. There is absolutely NO incentive for the buyer to pay you off sooner.
2. It will take 30 years for you to get paid.

My recommendation is to do this but based upon a 15 yr amortization and not 30 years. Yes his/her payments would be higher but you can show them how much they will save. There are two benefits for you...
1. You get paid faster
2. If they stop making payments a coupld of years from now, you can foreclose, take the home back and potentially sell for an additional profit.

gmakerley · Posted: Sat Oct 24, 2009 6:07 am Post subject:

john, i am still quite skeptical about this minimum interest rate. i don't remember the other discussion (thread) on which we debated the topic, but your 4%, for example, would prevent lenders from basing loans with a nominal charge added to the fed funds rate. and by that i mean institutional lenders.

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