Investing with Family and or borrowing money is one of the more difficult decisions to make. This can be tricky as we’re dealing with a large sum of money. Now we’re encroaching on a private loan and the expectations of paying it back becomes more nerve-racking as you see each other on holidays, birthdays and so on. The upside of this situation is that your family might be more willing to part with their money to help you rather than a lender. Naturally you wouldn’t go to a family member if you were approved by your lender.
What’s the best way to do this? Don’t bring it up unless you’ve come up with the plan. It’s not something you want to bring up casually and say “I was just thinking about purchasing a home, can you help me?” Certainly your family will listen either way but it will be better said if you have gone to a lender, understood your obstacles, identified your location/community and created a loan summary in detail no different from a business plan. This way you sound educated, proactive and sincere about moving forward and needing help with the purchase. Remember that this loan is no different than a traditional loan, just with private money. We all want to know how we’re going to be paid back even if we love you!
Getting a private home loan is called private mortgages and or intro-family mortgages and are very similar to traditional home loans or credit unions. Below are examples of similarities for both loans.
• A promissory mortgage note detailing the terms of your agreement for both parties to sign.
• Repayment dates, interest rate and amount loaned.
• Deed of Trust, which gives the person lending you the money the right to Foreclose on the property and ability to recapture all or some of their losses.
• A lien on the property showing you owe a debt.
Having this in place will protect both parties involved. Think about this in a real life situation. You have borrowed money from your family and finally have the loan. Unfortunately, you had a family get together and had a major blowout, and now the borrower (your family) want to renege on the loan and demands their money back. If you’ve gotten this loan in place the right way, as long as you’ve been paying on the loan based on the terms in place, those threats can never be implemented.
There are advantages to borrowing from family and friends:
• Interest rates are not based on your credit scores.
• Depending on your situation, you may have worked out an arrangement for payment every few months if you’re a commissioned worker as determining when you get paid is more difficult to do. A lender won’t do that; they want their money every month regardless of your situation and obligations.
• Tax deductions are exactly the same whether you acquired a private loan or a traditional bank loan.
If you’re considering asking for a home loan from a friend or family member just remember to be prepared. By doing this you can educate them through the process and explain the repayment options thus making them more confident about lending you money.
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