FAMILY MORTGAGES. The smart way to manage mortgage loans between family members. A GUIDE TO

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1 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... The smart way to manage mortgage loans between family members. A GUIDE TO FAMILY MORTGAGES

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3 ABOUT NATIONAL FAMILY MORTGAGE OUR CUSTOMER BILL OF RIGHTS NATIONAL FAMILY MORTGAGE WHAT IS A REVERSE MORTGAGE? LEARN ABOUT YOUR OPTIONS THE CAREGIVER MORTGAGE 8 STANDARDS 12 TIPS FOR THE BORROWER 13 TIPS FOR THE LENDER 15 Q&A 17 CALCULATOR 19 LOAN MANAGEMENT DASHBOARD SAMPLE APPLICATION 24 TABLE OF CONTENTS 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 National Family Mortgage, LLC. All rights reserved. 67 Leonard Street, Suite 5, Belmont, Massachusetts 02478

4 About National Family Mortgage 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. Our team has been doing this for years. We've helped families across America manage over $336 million in peer-to-peer home loans, while keeping over $151 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. 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 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! ABOUT NATIONAL FAMILY MORTGAGE 1

5 DREAMS. You have a right to dream big. National Family Mortgage supports the American dream of home ownership and we are committed to helping you get and stay there. FREEDOM. You have a right to break free from the tyranny of a corrupt and broken banking system. 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. HONESTY. You have a right to talk honestly about money. 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. FIT. 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. LOVE. You have a right to use your money to help the ones you love. Banks will never love you like your family does. VALUE. 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. OUR CUSTOMER BILL OF RIGHTS 2

6 NATIONAL FAMILY MORTGAGE IN THE NEWS... 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. 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. 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. 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? - Terry Savage, Chicago Sun-Times March 15,

7 Introducing... The Caregiver Mortgage 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 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. WHAT IS A REVERSE MORTGAGE? Our easy and transparent process is also designed to facilitate participation and maintain harmony between siblings and extended family members. 4

8 NATIONAL FAMILY MORTGAGE IN THE NEWS... 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. 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! LEARN ABOUT YOUR OPTIONS 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,

9 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 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 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

10 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 Recieve 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

11 LEARN MORE... SO, WHAT DOES ALL THIS COST? 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 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 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. THE CAREGIVER MORTGAGE 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 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 assumes monthly interest payments will be borrowed as part of the credit line. Lenders have the ability to "gift" this interest and report imputed interest income to the IRS if desired. THE CAREGIVER MORTGAGE 8

12 HOW CAN WE HELP? CURRENT IRS APPLICABLE FEDERAL RATES SHORT-TERM RATES For loans up to 3 years August % September % MID-TERM RATES For loans more than 3 and up to 9 years August % September % LONG-TERM RATES For loans more than 9 years August % September % National Family Mortgage requires all borrowers to make monthly payments. Therefore, the minimum annual rate of the loan is based upon the proper monthly AFR. 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. HOW DO I SET UP A CAREGIVER MORTGAGE? 9

13 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) 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 disgression. 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 will increas by 1.70% in

14 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 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 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 ed credentials to track their loan. Your Caregiver Mortgage is now complete! 11

15 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 repayment schedule requires monthly payments, due on the first of every month. 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% % 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 12

16 LEARN MORE... National Family Mortgage at a Glance Loans funded to date: Over $336,000,000 Total interest kept in family: Over $151,000,000 Average rate - July 2015: 3.09% Average term - July 2015: 21 years Smallest loan to date: $11,100 Largest loan to date: $2,000,000 TIPS FOR THE BORROWER 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. Know how a family mortgage can work. 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: TIPS FOR THE BORROWER - 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. Of course, we're always here to help! 13

17 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. 14

18 NATIONAL FAMILY MORTGAGE IN THE NEWS... 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 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. Past Experiences: If appropriate, reference past experiences that deal with an informal loan ending poorly for you and the other party. 15

19 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 Upload and attach images and receipts Individual annual tax reports Payoff statements 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). Reflect on your own interests. 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. 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. 16

20 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 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. 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: 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 borrwer qualify for a Caregiver Mortgage if they still have a regular mortgage? Yes. The borrwer 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. Q&A 17

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