When private mortgage financing originates between family members, property tax and mortgage interest deductions frequently come into question. But before addressing mortgage interest deductions, let's contrast owning, being on title, with owing, an unpaid balance on a home mortgage.
Title determines who owns the designated real estate. Don't confuse the person on title with the borrower on the home mortgage. They may or may not be the same party.
With private mortgage financing, both buyer and seller should understand who will be holding title as owner to the property.
When title to property is transferred, a seller grants a deed to the buyer. The deed, sometimes called a grant deed or warranty deed in western states, can be recorded with the local county government.
Note that the name of the deed can vary among states. In your particular state the recording instrument may be called by another name.
You can read about insurance for titles at How To Get A Mortgage - Title Insurance here.
The party on the mortgage owes the amount borrowed. The mortgage creates a lien against the property.
With private mortgage financing, buyer and seller usually create a written agreement spelling out repayment terms. This agreement is commonly called a promissory note.
Like the grant deed which transfers title, a deed of trust can be used to record the lender's mortgage lien against the property.
Financial instruments such as trust deeds vary throughout the United States. So it is important to know what is customary in your region because your legal rights could be affected.
Regarding mortgage interest deductions, interest paid on a mortgage for a personal residence is normally an income tax deduction. For details, the guidance of an accountant or financial planner is necessary to determine who can take advantage of the deduction.
Property taxes of primary residences can generally be deducted too. Again, questions regarding taxes must be directed to a CPA or financial adviser to address individual circumstances.
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When private mortgage financing originates between family members, these questions arise.
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