Borrowing From Family and Friends to Buy a House
by
Craig Venezia
Parents, other relatives, or even friends who lend you money for a house can benefit too.
Bob Hope once said, “A bank is a place that will lend you money if you can prove that you don't need it.” Maybe that explains why more and more homebuyers are turning to their loved ones, and even more distant members of their circle, for help with financing. If done right, tapping the "Bank of Family and Friends" can be financially lucrative for both you and the person lending you the money. You get the cash you need, they earn interest at a rate equal to or even higher than they could have gotten elsewhere -- everyone wins.
Commonly called a private home loan, a private mortgage, or an intrafamily mortgage, such a loan is not much different than one you'd get from a bank, credit union, or other institutional lender. As with an institutional loan, you'll normally sign a contract and establish a schedule of monthly repayments with interest. Your private lender will hold a lien on your property and have the legal right to demand full payment on the outstanding balance if you fall behind in making payments. Your private lender can even foreclose if you default on the loan (though few would go so far).
Rest assured, you have legal rights as well. Your parents couldn't foreclose on your house just because you arrive late for their 50th wedding anniversary, and your best friend couldn't demand an early payoff in order to buy a new car.
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