I'd like to "refinance" the remainder of my home loan with my parents, meaning, they would pay off the remainder of my loan, and I would pay them an agreed-upon interest rate for an agreed-upon time. I live in Virginia. My parents live in CA. Are there any legal impediments to this?

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    Do you want to be able to take the mortgage interest deduction on the loan? Do your parents want to have a lien on the home? – Justin Cave May 2 at 20:18

I wouldn't call it an impediment but you need to have a written mortgage agreement in place to identify at least the following terms:

  • Interest rate
  • Monthly payment amount and due date
  • Term
  • What happens if you miss payments (i.e. at what point are you in default and they foreclose)
  • What happens if they die
  • What happens if you die
  • Insurance requirements
  • Usage restrictions (if any)

The mortgage needs to be filed with the county (or whatever is appropriate in Virginia) to prevent you from selling the house while they still have money owed on it.

They also need to claim the interest as income on their taxes (whether or not you can itemize it as a deduction).

This may seem like overkill for a family loan but it's to protect both of you in case something goes askew, and makes certain that everything is clarified and not assumed (I've seen situations where the borrower thought there was some "grace" on payments and decided not to pay for a few months, which caused friction). If it makes either of you uncomfortable then maybe a family loan isn't the best option.

There also may be some state-specific requirements that needs to be addressed. I would call a local title company and see if they have any additional advice.

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