IT’S SIMPLE, ACTUALLY.

FAMILY MORTGAGES
A GUIDE TO
VIRGIN MONEY LETS YOU SET UP YOUR
OWN LOAN WITH FAMILY OR FRIENDS.
THEN WE MANAGE IT FOR YOU. ALONG
THE WAY, WE’LL PROTECT YOUR
RELATIONSHIPS AND SAVE YOU
THOUSANDS IN BANK FEES. SOUND
GOOD?

TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY,

VISIT: WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472

The Virgin Money Bill of Rights expresses what we
think money should be about. Keep an eye on this
space for your rights.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY,
VISIT: WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
WHAT IS A FAMILY MORTGAGE? 1
HOW DO I SET UP A FAMILY 3
MORTGAGE?
TIPS FOR THE BORROWER 7
TIPS FOR THE LENDER 8
Q&A 10
THE SKINNY ON VIRGIN 13
MONEY
THE LEGAL FINE PRINT
BEFORE WE GET STARTED, WE’D LIKE TO GIVE OUR LEGAL TEAM
THEIR MOMENT IN THE SPOTLIGHT. READY... SET... GO!
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. The scenarios presented are fictitious and purely
for representational purposes. Every transaction is unique and ques-
tions 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 advi-
sor before entering into a financial transaction of this nature. Virgin
Money is not a law firm and does not provide legal advice or tax
advice. Virgin Money 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 Virgin Money USA, Inc., and may not be
reproduced or redistributed for any purpose without the express
written consent of Virgin Money USA, Inc.
 REAL PEOPLE. VIRGIN MONEY
PROFILES
LINE UP A HOME LOAN FROM FAMILY
OR FRIENDS.
When Amy Semerjian decided to buy a 1904
farmhouse in Northampton, Massachusetts
she assumed she would get her mortgage
from a bank. Then, her mother made her an
offer she couldn’t refuse: use Mom and Dad
as her lender. Her mother notes, “I figured,
‘why is my daughter paying the bank when
she could be paying me?’”
With the help of Virgin Money, Amy
borrowed $180,000 from her parents. But
this wasn’t a loan sealed with a handshake
and a promise. She signed paperwork every
bit as official as she would at a bank. As a
result, she secured a tax-deductible mort-
gage at a competitive 5.75% interest rate,
avoiding lenders’ fees and keeping the
money she pays in the family.
Meanwhile, in addition to helping their
daughter, Amy’s parents earn a decent
return on their investment, which is not
easy in these days of low interest rates.
“It’s a little bit scary borrowing from your
parents, but this is an official thing,” said
Amy. “And in our situation, it’s to our
mutual benefit.” Amy’s parents are now
earning $1,200 a month from their
daughter’s loan. “The mortgage was actu-
ally $173,000, but she wanted a little extra
for shoes,” joked her mother. “It’s so nice to
keep it in the family.”
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
WHAT IS A FAMILY MORTGAGE?
A private mortgage is a loan between private parties,
usually two individuals, which is secured by real estate.
Just like a traditional bank mortgage, a private mortgage
might be used to buy, renovate, or refinance a home, or
even as a way to secure a personal loan used for other
non-real estate purposes. A private mortgage can pro-
vide the structure of a bank mortgage while retaining the
flexibility associated with loans between relatives and
friends, resulting in a win-win transaction for both the
borrower and the lender.
When the loan is between family members, we call it –
you guessed it - a family mortgage.
You can use our Family Mortgage in many of the same
situations you might use a traditional bank mortgage,
such as, to:
Help purchase a home. The money can be used for the
entire purchase of the home, for the down payment, or
to supplement bank financing and avoid paying Private
Mortgage Insurance (PMI).
Refinance a bank mortgage. The money can be used to
lower the interest rate, to eliminate PMI, to keep interest
payments within the family rather than paid to a bank,
or to achieve more favorable terms.
Formalize an existing home loan from relatives. Home
loans from relatives made in the past can be formalized
to realize tax benefits, such as interest deductibility,
capital gains write-offs, and legal benefits (e.g. probate,
legal protection).
Renovate a home. The money can be used in place of a
home equity loan.
When you or someone you know needs mortgage financ-
ing, consider a Virgin Money Family Mortgage. Here’s
why:
Family Mortgages keep the money in the family. Interest
is going to have to be paid on the mortgage, whether it
is to a bank or to a family member. Why not pay it to
someone you know?
Family Mortgages create a win-win situation for the
parties involved. It is possible to design a private mort-
gage so that lenders generate a higher return than they
would in a money market or a savings account, and so
that borrowers get lower interest rates than they would
with a traditional lender.
1
 LEARN MORE...
...CAN I USE VIRGIN MONEY FAMILY
MORTGAGE FOR MY DOWN PAYMENT?
Yes, a family loan is one way to come up
with the money for a down payment on a
home. Many banks insist that borrowers
retain at least an 80/20 debt/equity ratio in
their new home. Typically borrowers who
can’t come up with 20% of the purchase
price for their new home must pay Private
Mortgage Insurance (PMI) at a high rate.
We can help you bridge this gap. Call us if
you need help working with your bank to
use a Virgin Money Family Mortgage for
your down payment.
DREAMS
You have the right to big, fat, humongous dreams.
That’s right. We said it. Humongous. You should
share your humongous dreams with people who
care for you. Together, you can figure out a way to
finance them—to make them happen. Then one
day you’ll wake up, rub the sleep from your eyes,
and hardly believe it all happened to you. And
you’ll live happily ever after. The end.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
Our Family Mortgages create a win-win situation for the
parties involved. It is possible to design a private mort-
gage so that lenders generate a higher return than they
would in a money market or a savings account, and so
that borrowers get lower interest rates than they would
with an institutional lending source.
What’s in it for the borrower? Plenty. Here are just a few
benefits to consider.
A low interest rate: Often, interest rates charged
through intra-family arrangements are lower than rates
charged through banks and traditional lenders. On
average, private mortgage interest rates are between
one half and one full point lower, and that can add up to
thousands of dollars in interest savings over the life of
the loan.
Flexible payments: A private mortgage can be designed
to allow a level of flexibility in the repayment schedule
not available in a loan from banks and traditional lend-
ers. For example, payments can be temporarily paused,
shifted to the end of the loan, or reduced for a pre-
defined period of time - as long as the lender agrees to
the change. That is something a borrower could never
achieve with a bank mortgage.
Tax deductible interest: If a private mortgage is properly
formalized, the borrower can usually deduct the mort-
gage interest charged, just like a traditional bank mort-
gage.
If a private mortgage is properly set up and is legally
binding, lenders find the transaction also benefits them
for the following reasons.
A strong investment vehicle. Family lenders are able to
generate a good interest rate relative to comparably
safe investments such as money market accounts,
certificates of deposit, treasury notes, etc.
Protection. As long as the loan is secured by real estate,
the lender can rest assured that their investment is
protected. This can be particularly important when an
unforeseen event occurs, such as the death of the bor-
rower.
Monthly income stream. Private mortgages generate a
recurring income stream from payments - in cash - paid
by the borrower. This is an attractive feature relative to
other investments, especially for retirees and others on
a fixed income.
2
 HOW CAN WE HELP?
VIRGIN MONEY CAN SET UP YOUR
FAMILY MORTGAGE.
Our team is well versed in facilitating all
types of private mortgage transactions. We
understand the questions and concerns you
may have when arranging a private mort-
gage, and are skilled in handling unique
repayment situations that may arise. Virgin
Money offers a variety of services geared to
make your private mortgage transaction as
secure and successful as possible. Some of
our services include:
Mortgage documentation and set up.
Promissory notes, mortgage recording, title
searches, compliance with the Applicable
Federal Rate.
Mortgage payment processing. Repay-
ment schedules tailored to your individual
situation, loan restructuring to ensure that
missed payments do not lead to default,
direct debit and direct deposit of payments,
late payment follow up.
Payment tracking and accounting.
Online account access, year-end reporting
for taxes, and record-keeping.
FIT
You have the right to a loan that’ll fit you like a
glove—and not a straightjacket. Look, we aren’t
slick salespeople. We’re not trying to trick you into
buying something that isn’t right for you. If we
can help, we’ll let you know. If not, we’ll let you
know that too. We’re good like that. We just want
everyone to be happy with their loan. Really, is
that too much to ask?
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
HOW DO I SET UP A FAMILY
MORTGAGE?
Even when it’s between relatives, legally binding docu-
ments and proper management are necessary for a
mortgage. Here’s why:
For the borrower, proper documentation will ensure that
tax benefits are realized (we provide more details on this
below.)
For the lender, proper documentation will ensure that he
or she is protected in the case of default and foreclosure.
By spelling out the loan details you can protect your
personal relationships because you are clarifying expec-
tations upfront.
Take full advantage of the flexibility of a private mort-
gage by picking an interest rate and a repayment sched-
ule that meet your unique needs. In the case of an
intra-family mortgage, the interest rate and the repay-
ment plan are usually selected to give the borrower a
better deal than they might find at a bank.
In this section we outline the steps to set up a Virgin
Money Family Mortgage. These are:
1. Agree to the terms and payment schedule
2. Create a legally binding document
3. Set up a plan for servicing (managing repayment and
reporting) the loan
TERMS AND PAYMENT SCHEDULES
Following is a list of the basic terms the borrower and
lender establish in order to prepare a family mortgage.
Amount borrowed
The total amount that is to be borrowed.
Repayment start date
The date that the mortgage will begin to be repaid.
Typically banks set this date no sooner than 30 days
from the loan closing to allow time for the paperwork to
process. You may want to do the same.
Interest rate
The loan agreement should clearly state the interest rate
to be charged, and whether it is compound or simple
interest. The lender and borrower should pick a rate
using the following guidelines:
3
 REAL PEOPLE. VIRGIN MONEY
PROFILES.
SEE HOW KEEPING A HOME LOAN IN
THE FAMILY CAN PAY OFF.
Like many retirees who rely on interest
from their retirement savings, Jane Driscoll
of Dedham, MA had watched her monthly
income drop in recent years with the
decline in interest rates. Unbeknownst to
Jane, the solution to her declining interest
rates would come from her daughter’s
purchase of a home.
Her daughter, Margaret Driscoll, had
recently pre-qualified for a mortgage on a
new home. However, when Margaret and
Jane discussed the mortgage rate and
contrasted it to the rate on Jane’s CDs, they
had an idea. A few days prior, Margaret had
heard about how Virgin Money can set up
and manage intra-family mortgages.
After talking with Virgin Money, Margaret
and Jane decided it made more sense for
Margaret to get her home loan from her
mother rather than the bank.
“It was crazy to pay all of that interest to a
bank when I could just as easily pay it to
my mother. It turns out we both benefited,”
she said. “My mom nearly doubled her
monthly income [compared to her CDs] and
I’m paying a lower rate on my mortgage
than any bank could offer me.”
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
Avoid IRS scrutiny. In order for a transfer of private
money to be considered a mortgage loan and not a gift,
the lender must charge an interest rate at no lower than
the minimum rate required by the federal government,
called the Applicable Federal Rate (AFR). If you charge
less than the AFR, the IRS may view the forgone inter-
est income as a gift from you.
Consider the opportunity cost to the lender. The money
loaned would most likely be earning a return if invested
elsewhere (i.e. a savings account or CD). Consider that
alternative and pick a rate that both the borrower and
the lender feel is fair given alternative uses of the
money.
Payments
Each payment you make will go towards the principal
(the loan amount) and the interest, but you can choose
how quickly you pay down the two different amounts.
Standard mortgage payments include principal plus
interest, but you can also choose to make interest-only
or principal only payments. Here are some of the differ-
ent combinations to consider:
Principal Plus Interest. Each installment paid toward
repayment of the mortgage consists of two parts, the
interest owed and the principal. This is typically how a
conventional mortgage from a bank
is repaid.
Interest Only. Each installment paid toward of the mort-
gage repays the interest obligation only; the principal
balance usually comes due as a lump sum at the end of
the mortgage term.
Repayment Schedules
Mortgage payments are organized into a schedule which
determines how much you pay and when you pay it.
Traditional bank mortgages are amortized; the borrower
pays the same amount every month for the life of the
loan. However, consider using a graduated schedule if
the borrower has low income now but expects it to
increase with time.
You might also choose a seasonal loan if the borrower’s
income is dependent on a job or business that is sea-
sonal and fluctuates on a predictable pattern throughout
the year.
Amortized. The repayment schedule consists of pay-
ments that are always the same dollar amount and are
due at regular payment dates (monthly, quarterly, or
annually) for the life of the loan.
4
 REAL PEOPLE. VIRGIN MONEY
PROFILES.
BORROWING FOR YOUR NEW HOME
FROM THE BANK OF MOM AND DAD.
Samira Sadeghi and her husband jointly
purchased their home, a duplex in the Bay
Area, with her parents. It made sense: her
parents got on site rental management for
an investment property, and Samira and her
husband could afford their first home.
Last year, her parents paid off the bank loan
on the property and then used Virgin Money
to hold Samira’s mortgage themselves. Now
Samira and her husband make their
monthly payments to her parents, who get
a 6% return on their money. “I still get my
tax deductions and everything you’d get
with a bank, but I’m not paying a bank, I’m
paying my Dad,” she said “I love the whole
idea.”
LOVE
You have the right to mix money and relationships,
and live to tell the tale. Yes, it can be done. Trust
us. And it’s where we come in. We’ll look after your
loan and handle all the details. You never even
need to talk business with your loan partner unless
you want to. So you can mix money with relation-
ships, and still come out happy as a clam. How
sweet is that?
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
Graduated. The repayment schedule starts with lower
payments initially (monthly, quarterly, or annually) but
they gradually increase later in the life of the loan.
Seasonal. The repayment schedule where both principal
and interest payments are lower during some months of
the year and higher in other months of the year
(typically used for situations where a borrower’s income
is different at different times of the year).
Late payments and default
In the event of any problems with repayment of the
loan, it is important to have the consequences spelled
out so both parties are clear about how to handle the
situation. Particularly with a family mortgage, the best
way to protect the personal relationship is to put into
writing the expectations for both parties, and the conse-
quences of failing to meet those expectations.
Late payments. Establish the number of days after
which each payment is deemed late. This number can
range from 0–15. Most Virgin Money clients choose a
10–15 day “grace period” after which a payment is
deemed “late” and a late fee becomes due. Our clients’
late payment fee range from 0–$100 and currently
average about $25, but you can choose any amount. For
family transactions, some clients elect to have no late
fee and we have found that this does not impact the
borrower’s willingness to make payments on time. This
is partially because Virgin Money collects payments in
an automated way using direct debit.
Default. Once the borrower exceeds the grace period
without making a payment, he or she is technically in
violation of the contract. Determine what defines a
default and what rights you will exercise in the event
that a default occurs. If a borrower defaults on a private
loan and the lender can show through documentation
that the loan was a legitimate one and tried to collect on
it, the lender may be able to write off the bad debt
portion of the loan as a capital gains loss (subject to
annual maximums).
CREATE A LEGALLY BINDING DOCUMENT
Once all the terms are set, it’s time to make the agree-
ment legally binding. All family mortgage transactions
have two components:
Promissory Note. The promissory note establishes the
debt between the parties and records how that debt is
going to be repaid.
5
 LEARN MORE...
...WHAT DIFFERENT TYPES OF FAMILY
MORTGAGES ARE THERE?
A first mortgage - when the entire purchase
price is financed solely by the private
lender, and there is no bank or other lend-
ing institution involved.
A second mortgage - used to supplement a
bank mortgage, typically for financing a
down payment or a renovation. In general,
these loans range in size from $25,000 to
$75,000.
A refinancing - used to pay off a conven-
tional mortgage with a bank, typically
trading in a market rate with the bank for a
lower rate from family or friends. Virgin
Money typically finds that the interest rates
charged by family members for refinancing
transactions are 1% lower than market
rates. Sometimes homeowners will also
refinance to take some of the equity out of
their home, called a cashout refinance.
A private equity loan - when real estate
serves as collateral for a private loan; the
loan is often used for a renovation or other
personal expense.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
Mortgage/Deed of Trust. This creates an interest in the
real estate to secure repayment of the debt. Attached to
the Mortgage/Deed of Trust is a legal description of the
property, usually taken from the deed to the property.
If the family mortgage transaction is being done to
purchase a property, there will need to be a transfer of
the title to the property to the borrower in conjunction
with the loan. The following materials will need to be
prepared as part of the transfer of the title to the prop-
erty:
A deed (transferring the property from seller to buyer).
State and federal compliance documents - these vary
dependent upon which state you are in and on the
circumstances of the transaction. Examples include:
• Transfer tax form
• Lead paint
• Smoke detectors
• IRS seller documents (capital gains)
Legal description of property being transferred (for the
deed and to be used in the mortgage)
In addition, the following items are optional but are
often used in loan transactions, whether for a purchase
or for a refinance, especially in traditional bank mort-
gages:
• Appraisal
• Home Inspection
• Full title search and title insurance
• Purchase and sale agreement
• Real estate taxes (check to see that all are paid)
• Homeowner’s insurance (paid in advance for one year)
SET UP A PLAN FOR REPAYMENT OF THE LOAN
Finally, there will need to be a plan for managing the
repayment of the loan. Most parties to a private loan
use one of the following two options:
You can do it yourself. You can send a check every
period by the due date specified in your promissory
note. Keep in mind that over 33% of self-administered
payments by check are late or missed entirely, and this
tends to be a significant cause of strained relationships
and misunderstandings. Missed payments also make it
difficult to calculate year-end numbers for tax filings.
6
 LEARN MORE...
...HOW CAN THE INTEREST RATE ON A
FAMILY MORTGAGE BENEFIT BOTH THE
BORROWER AND THE LENDER?
Though bank mortgage rates fluctuate over
time, they are usually 2–3% higher than
the Applicable Federal Rate (AFR), the rate
that the IRS requires as a minimum for
private loans (see more on this in the next
section.) At the same time, the AFR tends
to be higher than the rate individuals can
earn on short-term cash investments, such
as money market accounts and CDs. This
means that the parties to a family mortgage
can agree to a rate that is lower than a
traditionally available mortgage (to the
borrower’s benefit) and higher than alterna-
tive cash investments (to the lender’s
benefit), and that meets the IRS guidelines
for a private loan.
For example, a son closes on a family
mortgage at 4.9% and feels he has won
because he is getting the money he needs
at less than it is available from banks. His
win is felt as a reduction of thousands of
dollars in interest payments over the life of
the loan. If we assume that his parents
were earning 4% keeping their money in
CDs, by issuing the mortgage they have
increased their investment return from 4%
to 4.9%, a win for the parents that is felt in
increased monthly cash payments. The
4.9% rate is thus a win for both parties and
is acceptable to the IRS because the AFR for
that month is 4.59%.
In addition, even though the loan is
between family members, as long as it is
structured as a formal mortgage, the son
will also be able to deduct his interest
payments on his taxes, just as if the intra-
family mortgage were a bank mortgage.
The parents will have the protection of
knowing that the loan is secured by real
estate, and that they have the option to
gain ownership of the home in the case of
default, to recapture any loss on the loan.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
You can hire a neutral 3rd party such as Virgin Money to
manage the repayment. Virgin Money administers pay-
ments using direct deposit and direct debit, which
makes loan repayment more convenient for both parties
and dramatically reduces the likelihood of late payments
and default. It also makes it easy at tax-time with all
the paperwork ready to be filed. Clients tell us that they
also value our optional free credit reporting service
which helps borrowers build credit - which they would
be unable to do if the loan was managed privately.
TIPS FOR THE BORROWER
Being on the borrowing side of a private transaction can
be as stressful as being on the lending side. To help you
prepare for the conversations with your lender, and for
the deal you hope to close, here are three things
you—as the borrower—should know.
Know how a family mortgage can work. Your request for
money 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 the potential 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. Refer to this
guide to show how a family mortgage could work. Be
ready to show your potential lender how Virgin Money
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, that the loan will jeopardize the relationship,
and that the money might be lost. Sharing this guide
with your potential lender will help you do that.
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:
• Get a higher yield than on other investments.
• Get a steady stream of income from an investment
that is secured by real estate.
• Keep the money 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. For example, one
typical objection to a request for a family mortgage is
that the loan is a 30-year investment and many lenders
7
 LEARN MORE...
...WHAT IS THE DIFFERENCE BETWEEN
COMPOUND INTEREST AND SIMPLE
INTEREST?
Compound interest calculates interest based
on the principal and interest; simple interest
only calculates interest on the principal
amount of money.
FREEDOM
You have the right to break free from the hope-
crushing, handcuffing, penny-pinching nature of
most bank loans. And not look back. Find your own
borrower. Or find your own lender. Choose your
own interest rate. Create your own repayment
schedule. Go on with your bad self. Let the banks
keep their lollipops. Keep more of your money.
And keep it between your family and friends.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
do not want to tie up their money for 30 years. Most
home buyers refinance or move after 5-7 years, but
there is understandably a certain amount of nervous-
ness about committing to a 30-year loan. Explain to
your lender that you can refinance the mortgage at any
time with a bank or another private lender. They can
also add a clause to the mortgage ensuring that they
have a legal right to demand full payment and effec-
tively cause refinancing. This is quite common.
Know how a family mortgage can benefit you. In previ-
ous pages we also described the ways a private loan can
benefit borrowers. Since your lender is probably inter-
ested at least in part helping you out, it’s a good idea to
be able to express and discuss the benefits you receive
by getting your loan from a family member instead of
from a bank.
In summary, these are:
• You can set your own interest rate which may be
lower than a bank would offer you.
• You can set your own repayment schedule to meet
the cash flow needs of your new business.
• You can make adjustments to your repayment
schedule to give you the best chance of repaying the
loan.
• You can still get the benefit of a federal tax deduc-
tion for interest paid just like a traditional bank
mortgage.
On this last benefit, note that the loan must be struc-
tured, documented, and recorded as a private mortgage
- rather than an unsecured loan that is not recorded
with appropriate local authorities.
We do recommend that you consult your tax advisor
regarding any changes to the tax laws which may affect
the ability to deduct mortgage interest payments.
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 in 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.
8
 HOW CAN WE HELP?
VIRGIN MONEY CAN MANAGE REPAY-
MENT OF THE LOAN.
In addition to providing the documentation
for your private mortgage, Virgin Money will:
• Create a repayment schedule.
• Setup the bank accounts to take and
receive electronic payments (payment can
also be received via check or money order).
• Record the mortgage with the appropriate
government authority to ensure that the
borrower can enjoy mortgage interest tax
deductions.
• Provide knowledgeable customer support.
When it comes to the ongoing business of
keeping the borrower and lender on track
per the terms of the loan, Virgin Money will:
• Send a reminder email to the borrower
before each payment comes due
• Debit the borrower’s bank account as set
out in the promissory note (or receive
payment via check).
• Credit an account designated by the
lender.
• Send a confirmation email to the lender
once the electronic deposit has been
completed.
• Furnish both parties with year-end tax
summary statements that detail the
interest and principal paid during that
year.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
Many people mistakenly assume that it is offensive or
inappropriate to ask for formal documentation when
arranging to transfer funds between relatives. In fact,
structuring formal documentation is perhaps 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 sched-
ules, grace periods, 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:
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 documenta-
tion in order to show that you are setting up a family
mortgage, and not making a 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 experi-
ences that deal with an informal loan ending poorly for
you and the other party.
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 $12,000 each year, which is
the Annual Gift Tax exclusion ($24,000 if made by a
couple; $48,000 if made by a couple to a couple).
The interest rate should be set at least at the relevant
Applicable Federal Rate (see our earlier discussion of the
AFR); however, if you do not plan to make any addi-
tional gifts to the mortgage recipient, it is possible to set
a below-market rate because the foregone interest is
not likely to add up to $12,000 unless your mortgage is
a multi-million dollar transaction. Interest paid by the
borrower can be deductible when the loan is structured
properly.
Reflect on your own interests. Before you agree to a
private 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
a friend or relative? Is it because you’ll generate a higher
return on your investment than you would in the stock
9
 LEARN MORE...
...HOW DO I DEAL WITH DEFAULT OF A
FAMILY MORTGAGE?
Basically, in the case of default, individual
private lenders have the same tools as a
bank. Family lenders have the option to
foreclose and to impact the credit rating of
the borrower, if necessary. In practice, we
have found that for family mortgages,
lenders and borrowers prefer to restructure
loans rather than foreclose on their relatives.
There are various ways that Virgin Money
has made it easy to implement loan
restructuring. For example, the private
lender could:
• Forgive the missed payment completely,
in other words, make a gift of the amount
of the payment. Just be aware that if you
exceed $12,000 in forgiven payments in a
year you will be exceeding your gift tax
exclusion for the year, per IRS regula-
tions.
• Agree that the borrower will skip a pay
ment one month and then double up in a
later month.
• Postpone the entire payment schedule for
an agreed upon period, until the borrower
is able to stabilize his or her financial
situation and resume the payment
schedule.
• Require that the borrower add the pay-
ment to the end of the loan term.
The payment schedule changes listed above
do not require a new promissory note.
Payment schedule changes that do require
a new note include a change on loan type
(secured/unsecured), a change in the
interest rate, or a complete restructuring of
the payment schedule from one form to
another (such as from amortized to gradu-
ated.)
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
market or in a savings account? Chances are, it’s a
combination of both. Articulate your goals as a lender
and share these with your borrower.
If you are planning to loan to a family member, be
sensitive that such a loan might raise some emotional
issues for other family members, such as jealousy. The
best approach is to be open with your family about the
loan, and make the same opportunity - possibly even at
the same terms - available to other family members.
Clarity in the legal document about who does what in
the case of late payments or default also prevents a
difficult situation down the road if the loan should turn
bad. Certainly, if you have a spouse, it’s best to discuss
the transaction before signing the papers. Make sure
that you are in agreement about the terms and expecta-
tions of the arrangement.
Q&A
Q: I’m making a loan to my sister so that she can pur-
chase a home. Why can’t I just download a free prom-
issory note from the Internet to document the family
mortgage instead of paying for a family mortgage
through Virgin Money?
A: Sure you could. But this is a risky choice. If you use
a simple promissory note, you and your sister will need
to do several things on your own to ensure that you
minimize financial risk, enjoy tax benefits (mortgage
interest tax deduction), and avoid emotional pitfalls of
interpersonal transactions. You’ll need to:
• Create a mortgage agreement, not just a promissory
note.
• Record the mortgage with public authorities.
• Manage the repayment plan.
• Recalculate the schedule to accommo date missed
payments, late payments, and partial payments.
• Keep track of interest payments and prepare a 1098
form for the IRS.
Usually, a loan such as a mortgage that takes place over
a period of years will bring different circumstances for
each party as the years pass. Payments could be
neglected; agreements and promissory notes can be
stashed in a drawer or closet so that the terms are
forgotten or ignored. By managing the entire repayment
process of your loan, including payment processing,
online accounts, and proven methods of payment collec-
tion, Virgin Money relieves you of having to manage
your loan and reduces any stress to the personal rela-
tionship that the loan might cause. In other words,
Virgin Money can provide a buffer, allowing you to keep
your loan separate from your personal relationship.
10
 HOW CAN WE HELP?
VIRGIN MONEY CAN TAKE CARE OF
YOUR DOCUMENTATION NEEDS.
Virgin Money provides the financing docu-
ments for a real estate transaction: the
promissory note, the mortgage itself, and
the legal description. Virgin Money will also
record your mortgage with your local Regis-
try of Deeds. In addition to the financing
documents for a real estate transaction,
Virgin Money also offers related services,
including advanced title searches, title
insurance and notary public/closing agents
who will come to your door. And of course,
Virgin Money provides loan management
services for administering the repayment of
your loan once it is signed and recorded.
Call to speak with a private loan specialist
to determine which of the following services
you will need in addition to documentation.
• Basic Owner Search: This provides the
name of the current owner, a legal
description of the property, and basic
property tax information.
• Property Search: This provides the name
of the current owner, a legal description
for the property, tax information including
the current status of tax payments, and a
listing of all mortgages and deeds of trust
currently pending against the property.
• Full Title Search: This search includes
items listed under Property Search as well
as a detailed report on the property going
back 60 years (depending on the state),
all outstanding liens/encumbrances
(mortgages, deeds of trust, judgments,
liens, UCC filings, tax liens, etc.) pending
against the property for any party,
enhanced property tax information includ-
ing special assessments against the
property and any exemptions for the
property.
• Tax Escrow Account: This is the monthly
payment of a portion of the real estate
taxes into an account which is then used
to pay the taxes when they are due.
• Insurance Escrow Account: This is the
monthly payment of a portion of the
homeowner’s insurance into an account
which is then used to pay the insurance
when it comes due.
TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:
WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472
Q: Do we have to keep track of the interest income?
A: Yes, you must report to the IRS all interest payments
as income for the lender and deductions for the borrower.
A benefit of using Virgin Money is that we can keep track
of interest income for you, and provide a year-end report
for tax purposes.
Q: Why does it matter that I record the mortgage with
public authorities?
A: If your borrower wants to deduct mortgage interest,
the mortgage must be recorded with the relevant registry
of deeds. In the event of a default or an audit, you must
show that your transaction was in fact legitimate.
If you want to write-off a defaulted loan or mortgage as
bad debt, you must show that you did in fact have docu-
mentation, that your transaction was legitimate, and that
you did try to collect on it. This means that you must
keep detailed and accurate records of the logistics of the
loan, including each payment, interest rates, and other
structures. Virgin Money can handle all the aspects of
managing and recording your mortgage so that you have
detailed documentation for public authorities.
Q: What will other relatives say about this loan?
A: If you are a parent setting up a mortgage with one
child, you may be worried about other children becoming
resentful. We recommend that you explain your reasoning
to your children and let them know that you are structur-
ing the loan as a business investment for both you and
the borrower, not gifting money arbitrarily.
You should also consider making similar resources avail-
able on similar terms to other children. This will reduce
the likelihood that you will be accused of playing favorites.
Q: If interest rates go up or if I can make a higher
return on alternative investments in the future, can I
increase the interest rate on the mortgage?
A: Yes. There are two options for you in this case. If you
have structured a promissory note with a demand fea-
ture, you should not have a problem with getting back
your funds so you can make an alternative investment.
One thing to keep in mind is that if you are going to
incorporate the demand feature into your promissory
note, it’s a good idea to determine the process with
which you intend to demand payment (i.e. in writing,
orally), and how long you will give the borrower to pay
back the money after you demand it.
Alternatively, when you are setting up the loan, you
might want to consider structuring the mortgage with an
adjustable rate linked to a market rate such as the
prime rate.
11
 HOW CAN WE HELP? Q:What happens if my borrower loses his or her job?
WE CAN WORK WITH YOUR ATTORNEY. A: There are a number of unexpected events during the
life of a loan that may take place, and unemployment
Private real estate transactions in the for the borrower is one of them. If the borrower is
following states typically require the unable to continue making payments during a period of
involvement of a local real estate attorney: financial distress, Virgin Money makes it easy to restruc-
ture the loan and keep it on track to be repaid.
CONNECTICUT
DELAWARE For example, depending on your situation, you can
GEORGIA choose to make the loan payments interest-only to
MASSACHUSETTS lower the burden on the borrower, or you can choose to
NEW JERSEY
forgive the missed payments, spread them out over the
WEST VIRGINIA
course of the mortgage, or add them to the end of the
However, in each of these states, you can term with a balloon payment. Virgin Money specializes
still use our loan servicing including: in different types of loan restructuring options while
keeping the initial terms of the agreement intact. In our
• Automatic payment processing. experience, this reduces the risk of foreclosure and
• Online record-keeping and account helps keep the relationship intact.
management.
• Year-end annual summary reports for
taxes.

Call us to determine the best role for Virgin

Money in your family mortgage.

TALK
You have the right to talk about money. And not
just when it’s time to split the check. Whether
you’re offering a loan or asking for one, it’ll prob-
ably be a little awkward at first. But don’t let that
stop you. Speak from the heart. Be honest. Just
don’t be shy. Good things can come from this
single conversation. Besides, compared to the
birds and the bees, this one’s easy.

TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY, VISIT:

WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472 12
 ABOUT VIRGIN MONEY

We are not a bank. We are not your attorney. We are a

financial services company, and we manage loans and
mortgages that fit you. That last part’s really important.

They fit your needs. They fit your dreams. They fit your
wallet because they’re for you. Some call that revolu-
tionary. We call it changing the face of money.

We’ve been doing it for years. We’ve seen over $200 mil-
lion in loans and mortgages as CircleLending. Now, with
the backing of the Virgin brand, we’re stretching higher
and farther than ever to offer products that bring money
and people closer together.

HOW WE DO IT

We take the simple steps that make sense when you’re

doing a loan or mortgage. The secret to our sauce (shh!)
is a huge helping of friendly, knowledgeable and reliable
support from our team. Every step of the way.

Here is our process:

Document the loan

Set up a repayment schedule

Transfer payments from borrower to lender

according to the schedule

Email regular statements and reminders

Send year-end reports for claiming tax deductions

Take your pick of our real estate products: we offer a

Family Mortgage, a Seller Mortgage or a Retirement Mort-
gage. Entrepreneurs can use a Business Builder loan to
raise capital but stay focused on their business. Anyone
can come up with a good use for a Handshake Plus per-
sonal loan. New car? Tuition? Wedding? Draft a loan
online and you’re on your way.

VALUE At the end of the day, we want to make your loan a suc-
cess and you happy. Why? One, so you’ll refer your family
You have the right to get way more than you pay and friends to us. And two, because it makes us feel good.
for. To the point where you almost feel bad about
it. But don’t feel bad. That would be silly. Of course
we’ll give you great products at fair prices. No
brainer, there. But we’ll also give you other
things-like straight answers to your questions and
brilliant customer service. And we mean like,
pass-the-sunblock brilliant.

TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY,

VISIT: WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472 13
 CALL TO DISCUSS YOUR

VISIT: WWW.VIRGINMONEY.COM
CALL US AT 1.800.805.2472
HOURS OF OPERATION ARE M - F: 9AM - 7PM ET
OPTIONS WITH ONE OF OUR
PRIVATE LOAN SPECIALISTS.
IT’S FREE. WE’RE PRETTY NICE. AND WE
WON’T KEEP CALLING UNLESS YOU
WANT US TO.

TO GET STARTED SETTING UP YOUR FAMILY MORTGAGE TODAY,

VISIT: WWW.VIRGINMONEY.COM OR CALL 1.800.805.2472