# mortgage question **URL:** \ **Category:** Factual Questions\ **Created:** [October 10, 2014, 12:18pm UTC](https://boards.straightdope.com/t/mortgage-question/700955 "2014-10-10T12:18:05Z")\ **Posts on this page:** 7\ **Page:** 1
**Author:** ![MostlyUseless](https://avatars.discourse-cdn.com/v4/letter/m/ba8739/32.png) [@MostlyUseless](https://boards.straightdope.com/u/MostlyUseless)\ **Post date:** [October 10, 2014, 12:18pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/1 "2014-10-10T12:18:05Z")
My sister and I are co-owners of a townhome that was held in trust by my mom. I want to buy my sister out, but I am not sure how to approach the loan. I have several options, but don’t know the best alternative. The house is worth approximately $90K with no existing mortgage. Thus, I want to pay her $45K. I have a VA loan that I could purchase as a first and conventional is an option. Additionally, my credit union is offering a revolving HELOC. Should I approach this as a first mortgage or is a HELOC a favorable option? ---
**Author:** ![Orwell](https://avatars.discourse-cdn.com/v4/letter/o/dfb087/32.png) [@Orwell](https://boards.straightdope.com/u/Orwell)\ **Post date:** [October 10, 2014, 1:01pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/2 "2014-10-10T13:01:23Z")
If you go conventional first mortgage, you will want to keep the loan-to-value under 80 percent, so you don’t have to pay PMI. That means you want to keep the loan under $72k. Given that you already own half, that probably shouldn’t be a problem. The expensive part will be closing costs (recording the mortgage, origination fees, title search, title insurance, etc.). A $70k mortgage is pretty small and these fees will likely represent a sizable amount. Go online to one of the mortgage shopping websites and see what interest rates and fees would be for a $70k loan. Your other option, as you mention, would be a home equity loan. If you keep the LTV low, say around 50%, you should be able to get a home equity loan easier and at lower cost than a traditional first mortgage. You will need to check with your local credit unions and banks to find out the terms (primarily the interest rate and closing costs) of home equity loans. The interest rate will be higher for a HEL, but the closing costs should be lower. > **[Mortgage Rates: Compare Today's Rates | Bankrate](https://www.bankrate.com/mortgages/mortgage-rates/)** > > Compare personalized mortgage rates when purchasing or refinancing your loan. Take advantage of historically low mortgage and refinance rates from our national marketplace of lenders. > **[See today’s mortgage rates on Zillow](https://www.zillow.com/mortgage-rates/)** > > Compare today's mortgage rates and get a customized quote from a lender that fits your needs. > **[Best Home Equity Loan Rates In May 2023 | Bankrate](https://www.bankrate.com/home-equity/home-equity-loan-rates/)** > > A home equity loan lets you borrow against your home’s value. To find the best loan for you, compare loan rates with a few lenders before applying. ---
**Author:** ![MostlyUseless](https://avatars.discourse-cdn.com/v4/letter/m/ba8739/32.png) [@MostlyUseless](https://boards.straightdope.com/u/MostlyUseless)\ **Post date:** [October 10, 2014, 2:25pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/3 "2014-10-10T14:25:55Z")
Thank you. I wasn’t positive I could go with a HELOC at all. ---
**Author:** ![bob\_2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bob_2/32/3341_2.png) [@bob\_2](https://boards.straightdope.com/u/bob_2)\ **Post date:** [October 10, 2014, 2:50pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/4 "2014-10-10T14:50:48Z")
An alternative might be to do a deal with your sister and pay her off monthly, if she doesn’t need the cash up front. You would still have lawyers and search fees, but the total cost would be lower. ---
**Author:** ![Orwell](https://avatars.discourse-cdn.com/v4/letter/o/dfb087/32.png) [@Orwell](https://boards.straightdope.com/u/Orwell)\ **Post date:** [October 10, 2014, 3:00pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/5 "2014-10-10T15:00:23Z")
> [@bob\_2](#): > > An alternative might be to do a deal with your sister and pay her off monthly, if she doesn’t need the cash up front. That’s actually a good idea, if she would rather receive a monthly stream of payments. You could come up with payment of her half over whatever time frame suits your budget. There are websites where you can easily see what the payments look like, such as: > **[Amortization Schedule Calculator](https://www.amortization-calc.com/)** > > Use this Amortization Schedule Calculator to estimate your monthly loan or mortgage repayments, and check a free amortization chart. > **[Amortization Calculator](https://www.calculator.net/amortization-calculator.html)** > > This amortization calculator returns monthly payment amounts as well as displays a schedule, graph, and pie chart breakdown of an amortized loan. > **[Amortization Calculator | Bankrate](https://www.bankrate.com/mortgages/amortization-calculator/)** > > Amortization is paying off a debt over time in equal installments. Part of each payment goes toward the loan principal, and part goes toward interest. You and your sister would need to determine how “official” you want to get. At the least, you should prepare a loan agreement, which can be either simple or complex, depending on how protected your sister wants to be. It can be recorded it at the county courthouse if she wants it to be known to other creditors as an official debt and lien on the property. If this scenario is appealing to you and your sister, ask the lawyer who will prepare the transfer deed about preparing a loan document, however complex you and she decide is necessary. If you decide to go this way, the interest you pay will still be deductible for you, and the interest she earns will be income for her. The amortization schedule you decide on can provide the annual interest amounts. It can be a win-win, allowing you a less costly loan, and yet provide her with more interest income than she can get at a bank. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [October 10, 2014, 4:14pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/6 "2014-10-10T16:14:19Z")
> [@Orwell](#): > > That’s actually a good idea, if she would rather receive a monthly stream of payments. You could come up with payment of her half over whatever time frame suits your budget. There are websites where you can easily see what the payments look like, such as: > > [http://www.amortization-calc.com/](http://www.amortization-calc.com/) > [Amortization Calculator](http://www.calculator.net/amortization-calculator.html) > [http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx](http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx) > > You and your sister would need to determine how “official” you want to get. At the least, you should prepare a loan agreement, which can be either simple or complex, depending on how protected your sister wants to be. It can be recorded it at the county courthouse if she wants it to be known to other creditors as an official debt and lien on the property. If this scenario is appealing to you and your sister, ask the lawyer who will prepare the transfer deed about preparing a loan document, however complex you and she decide is necessary. > > If you decide to go this way, the interest you pay will still be deductible for you, and the interest she earns will be income for her. The amortization schedule you decide on can provide the annual interest amounts. It can be a win-win, allowing you a less costly loan, and yet provide her with more interest income than she can get at a bank. Official is the way to go. You may have the best of intentions - but if you end up with a problem, she should be protected. We can mention worst case scenarios, like incurring massive medical debt, or a flood that ruins the property, or you get hit by a car and the will isn’t correct so she loses, etc. (or half-title remains hers until paid off, so she loses it somehow and you’re up the creek). Simplest for all parties is to have it as official as possible. ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [October 10, 2014, 7:36pm UTC](https://boards.straightdope.com/t/mortgage-question/700955/7 "2014-10-10T19:36:10Z")
> [@Orwell](#): > > You and your sister would need to determine how “official” you want to get. At the least, you should prepare a loan agreement, which can be either simple or complex, depending on how protected your sister wants to be. It can be recorded it at the county courthouse if she wants it to be known to other creditors as an official debt and lien on the property. If this scenario is appealing to you and your sister, ask the lawyer who will prepare the transfer deed about preparing a loan document, however complex you and she decide is necessary. > > If you decide to go this way, the interest you pay will still be deductible for you, and the interest she earns will be income for her. The amortization schedule you decide on can provide the annual interest amounts. It can be a win-win, allowing you a less costly loan, and yet provide her with more interest income than she can get at a bank. If this is (or will be) your home rather than a business or investment property, [you must officially record the loan and use the home as collateral](http://www.irs.gov/publications/p936/ar02.html) for the loan in order to claim an income tax deduction. Your sister must declare the interest as income whether or not you do so and whether or not you take a deduction. Things get more complicated if the interest rate is below the market rate.