my daughter and son-in-law will be purchasing our (wife and I) investment home. They currently rent it with option to buy. I wanted to run the following scenario by you regarding their loan. The purchase price is $140,000. The lender is splitting up the $140,000 loan as follows:
1st Mortgage: $112,000 (80%)
2nd Mortgage: $28,000 (20%).
On closing day we will receive $112,000 (instead of $140,000) and offer them a "gift of equity" of $28,000. Then
1 week later, the kids will take out a 2nd mortgage for $28,000 and turn around paying us the remaining equity of $28,000. By doing this, they will get favorable rates on the
1st mortgage and not have to pay PMI. For us, it seems to be a wash whether it is done this way in parts, or one shot. However, there might be tax consequences. What might these be? Is this practice legitimate? BTW, we will have lived in this house 2 out of the past 5 years. I look forward to your response.
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