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What is an intra-family mortgage?
An intra-family mortgage is a home loan where a family member provides financing instead of, or alongside, a bank. The loan is documented with a promissory note and typically secured by the property, similar to a traditional mortgage.
 
Is this a common way for families to help with a home purchase?
Yes. Families have used private mortgage arrangements for decades to help with purchases, refinances, and home equity needs, particularly when flexibility and long-term planning matter.
 
Does National Family Mortgage ® make or fund loans?
No. Families choose to lend to one another directly. National Family Mortgage ® provides support to help families document and administer their own loans.
 
Is this only for parents helping children?
No. At least one lender and one borrower must be immediate family members (parents, grandparents, children, or siblings, including adoptive and step relationships).
 
For seller-financed transactions, we also support arrangements involving aunts, uncles, nieces, or nephews.
 
A spouse, fiancé, or significant other may be included as a co-borrower if the primary borrower shares a qualifying family relationship with the lender.
 
Loans may also involve trusts (family, living, revocable or irrevocable, land, realty, or special-needs trusts), provided the trustee and counterparty share a qualifying family relationship.

Examples of how families structure these arrangements are discussed in How can parents loan money to their children to buy a house?

Is money from a family member considered a loan or a gift?
Families work with National Family Mortgage® specifically because there is a loan—not a gift. Transfers with a real expectation of repayment are generally treated as loans; transfers without repayment expectations are treated as gifts.
 
Can a family loan later be forgiven?
Yes. Forgiving a loan is generally treated as a transfer at the time forgiveness occurs and may be analyzed as a gift for tax purposes.
 
Does the IRS presume family transfers are gifts?
Family transfers are often scrutinized closely. Clear documentation and consistent repayment behavior help demonstrate that a transfer is a loan rather than a gift.
 
Is written documentation really necessary if everyone agrees?
While intent matters, written documentation provides objective evidence of a loan and reduces misunderstandings, tax issues, and family disputes.

Families interested in a deeper explanation of how loans and gifts are distinguished can read What’s the difference between a family loan and a gift?

Does a family loan have to charge interest?
A loan can exist without stated interest, but charging no or below-market interest—especially on loans over $100K—can trigger federal imputed-interest rules and unintended tax consequences.
 
What is the Applicable Federal Rate (AFR)?
The AFR is a set of interest rates published monthly by the IRS and commonly used as a benchmark for determining whether interest on a family loan is adequate under federal tax law.
 
Do we get to choose which AFR applies?
The AFR is based on the loan’s term and the month in which the loan is finalized. National Family Mortgage® loans are structured to meet or exceed the applicable AFR.
 
Can we lock in an AFR ahead of time?
No. The AFR is determined by the month in which the loan closes or is executed.

For a more detailed discussion of how AFRs apply to different family mortgage structures, see IRS AFR Rules for Intra-Family Mortgages and Seller Financing.

Does a family mortgage need to be recorded?
Yes. Family mortgages documented with National Family Mortgage ® are recorded by the family’s settlement agent. Recording is typically required for mortgage-interest treatment and provides important legal protections for the lender.
 
Why does recording matter if this is “just family”?
A recorded mortgage clarifies rights, protects the lender’s position, and helps prevent disputes involving divorce, refinancing, or estate administration.
 
Do we need a settlement agent or title company?
Yes. Even family transactions involve real property and typically require a settlement agent to handle recording, funds flow, and title matters.
 
Does National Family Mortgage ® act as the settlement agent?
No. Families work with a local settlement agent or title company to close and record the transaction.

The practical and legal implications of recording are explained in more detail in Why Proper Lien Recording Matters in Family Loans.

Do payments have to be made regularly?
Yes. National Family Mortgage® loan templates require monthly payments. Consistent payments are one of the strongest indicators that a family loan is genuine and not a disguised gift.
 
After closing, any changes to payment terms should be made thoughtfully and with guidance from the family’s advisors.
 
Is the lender required to report interest income?
Generally, yes. Interest received on a family loan is typically taxable income to the lender.
 
Does the borrower receive a mortgage interest statement?
When participating in optional loan servicing through FCI Lender Services, borrowers receive annual mortgage interest statements to support tax reporting.
 
Is loan servicing required?
Servicing is not legally required, but it helps families keep records accurate, payments consistent, and relationships protected.

Can we just document this ourselves using AI or templates?
Families can draft their own documents, but incomplete or inconsistent documentation often creates tax, legal, and family risks later.
 
Will banks allow a family loan alongside a bank mortgage?
Sometimes. Lender policies vary, and family loans must be disclosed and documented properly.
 
What happens if the borrower or lender dies?
The loan generally becomes part of the estate and continues according to its terms unless otherwise specified.
 
Did we ruin this by doing things out of order?
Not necessarily. Many families can still document and clarify their arrangements, though limits apply when documentation is delayed.

Families in this situation may also find Papering an Intra-Family Mortgage After the Fact helpful.

Do we need an appraisal or title insurance?
An appraisal helps the lender assess property value and risk. In some cases, a lender may be comfortable relying on local market knowledge or an agent’s analysis.
 
Lender’s title insurance is strongly recommended for added protection.
 
How should the lender disburse the loan funds?
Loan funds must be disbursed directly to the borrower’s closing attorney, title company, or escrow company—never directly to the borrower or seller.
 
National Family Mortgage ® does not handle disbursement of lender funds.
 
How does optional loan servicing work?
When a loan is serviced by FCI Lender Services, they:
 
send monthly statements to both parties
 
process payments via ACH
 
maintain loan accounting with no prepayment penalties
 
provide online access and annual IRS forms (1098 and 1099-INT)
 
offer optional escrow for taxes and insurance
 
The program is comprehensive and not offered à la carte.
 
Will the loan be reported to credit agencies?
No. Credit bureaus do not currently accept reporting for intra-family loans.
 
How can a lender make a financial gift during the loan?
A lender may make a direct cash gift within the annual IRS exclusion, which the borrower may use to prepay principal.

Alternatively, the lender may elect to reduce principal using their annual gift exclusion. Any gifts should be clearly documented and coordinated with the family’s tax advisor.

How is the mortgage released once the loan is repaid?
Typically, the settlement agent handling a sale or refinance prepares and records the lien release. If participating in optional loan servicing with FCI Lender Services, they can prepare and file your lien release, too - except in Colorado, where title companies and attorneys usually handle lien releases.

Can we refinance or amend the interest rate if AFRs fall?
Families generally have two options:
 
A true refinance involves paying off the existing loan and originating a new loan at the current AFR. This approach is the cleanest from a tax-defense perspective but requires a new closing.
 
An interest-rate amendment involves formally modifying the existing note to lower the rate (while still meeting the current AFR). This is fairly common when done sparingly and documented properly.
 
Repeated rate changes or informal interest reductions can raise tax and classification concerns. Families should consult their advisors before making changes.

Families comparing these two approaches often review Refinancing vs. Amending an Intra-Family Loan for a more detailed analysis.

Families approach intra-family lending in different ways, depending on their circumstances.

Some families work with experienced estate or tax attorneys who are familiar with documenting private family mortgages. Others explore online tools or services that advertise “family loans” or payment management between relatives.

The key distinction is that an unsecured promissory note or payment app does not create a recorded, tax-deductible home mortgage. A true mortgage loan involves state-specific documentation, coordination with a settlement agent, public lien recording, and consistent tax reporting.

Similarly, while some services help track payments between family members, mortgage loan servicing is a regulated activity when the loan is secured by real property. Proper servicing includes payment processing, recordkeeping, year-end tax forms, payoff statements, and lien releases.

Since 2010, National Family Mortgage® has focused specifically on helping families document and support properly structured, real-estate-secured intra-family mortgage loans, rather than informal or unsecured arrangements.

The comparison below highlights how different approaches typically differ in scope and functionality.
 

*When clients participate in optional loan servicing powered by FCI Lender Services, FCI can prepare and file the local lien release once a debt has been satisfied. Due to unique state regulations, FCI is unable to prepare and file lien releases for properties in Colorado. In those cases, a local title company or real estate attorney typically assists with the release.