Cash lender for House Hack

5 Replies

I'm in the process of trying to buy my first property and am planning on house hacking it. I have the cash to pay for the down payment with the FHA loan but after that I will be mostly out. What are your thoughts on using a family member/friend to pay for the down payment? Thanks

Congratulations on moving in the right direction! I know there are many people out there that hesitate with using family and friends for large expenses such as down payments for houses that have such high costs and possibly high consequences should something go wrong. There are many horror stories of family and friend relationships being torn apart by ill conceived plans or misuse of relationships. What you don't hear as much about are the stories of where these plans go right. 

I think these arrangements need to be well mapped out in order for them to succeed. You need to be able to put feelings briefly aside and focus on the fact that this is a big step and may have big consequences if not done right. This should include things like what happens if you are no longer able to pay? Is there an exit strategy? Is there a grace period to get things back in order should something go wrong? You mentioned you have the down payment is a portion of this going to be used for collateral should you not be able to pay for a time? It is OK to treat this down payment as you would a business, and this aspect of it should be treated as such IMO. It is also best to make sure the deal/situation is documented in some way between the family/friends so it is well defined with no grey areas. 

What you may run into though, is your situation may not be allowed by the bank that you will have your mortgage with. They usually want to know where the down payment is coming from in order to make sure you are a good candidate for a loan, and in most cases this needs to be from you. I'm sure there are some banks out there that allow this, but you may want to investigate a little first to make sure your situation fits their model. A down payment from someone else is looked at as another loan by most banks.

I'll end with a little encouragement for you. It is fine to think outside of the box or use what resources you have available (although family/friends are not really resources) and people do this type of thing all the time. I did use this type of situation for one of my rental properties. A couple of family members wanted to move closer to us and we wanted them to move closer to us. They did not want to own a house anymore but had money from a previous sale. They were going to rent in our area anyway, so we figured why not rent from us instead. We did not have the money needed for the down payment at the time so we structured the deal to use the lump sum for the down payment which we then applied to their rent payments (rent free for them for a couple of years) and we owned the asset. We were able to make the payments over time (kind of like saving for a house, but owning the house already). The house was newer and we felt it was very under priced at the time. I think if you asked they would say it was the best money they ever spent and we feel the same way. Also, best tenants ever.

Good luck which ever way you decide to go.

@Scott Shold thank you so much for all your insight. I definitely didn’t think about the bank wondering where the money was coming from. My thought was if I could get someone for the down payment and pay them back over time I could keep my cash on hand if something came up, especially being my first property.

Originally posted by @Jaret Brown :

I'm in the process of trying to buy my first property and am planning on house hacking it. I have the cash to pay for the down payment with the FHA loan but after that I will be mostly out. What are your thoughts on using a family member/friend to pay for the down payment? Thanks


see if there is any down payment assistance in your area. I found this by googling down payment assistance in {insert area}

 

FHA allows the entire down payment to come from a gift, but you and the donor will have to sign a letter stating that it is a gift and there's no repayment intended. Of course no one will come checking up on you after closing but if you go that route, it's definitely a little mortgage fraud-ish.

The down payment can come from a family member- you'd have a little bit of a tougher time proving a friendship because there's a requirement for the friend to "have a vested interest" in you. 

Also, the lender will need to see the bank statements of the gift donor to source the funds. No mattress money!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you