Engineer · Lawrence, KS · Member since 2014 · 13 posts · 3 votes
Discussion Scenario: say I were looking at purchasing a property for $120k and I wanted to take out a loan in my name with 5% down ($6000). Then I go to a private lender (family, friend, referal) to front the 5% down payment with an agreed upon repayment period and ROI. What legalities would need to be documented in receiving that money from the private individual (and then also in returning the money invested with me, along with interest, to the private lender)?
Personally, I have only ever received money in a paycheck with all the legalities and taxes already taken care off. So I'm completely unfamiliar with what kind of process is required to make such a monetary transaction legally. (I know the bank will ask for an explanation of any large non-income related deposits into your personal accounts during the period surrounding your mortgage approval process) Thanks for any tips or guidance on who to talk to or where start!
If you hadn't gathered from my initial posting, I have never gone through the process of getting approved for a mortgage. So if what I'm suggesting is not possible or not legal, I would sure like to know that as well! I am at least 12-18mo away from being able to save up my own down payment. I've just been so excited to get started on my own REI path that it's turned into me trying to figure out some creative financing so I wouldn't have to put off my first buy and hold investment! Any insights would be appreciated.
What I usually do with my friend/family private lenders are to give them a promissory note detailing the terms between the 2 of you. You can search online for simple note forms. If not, just draft something on MSWord or something & print out. For strangers, they might require you to use official form with "lawyer language" and notarized signature, record as the first deed and what not. My case, friends & families only need a print-out with my signature for smaller loans. Generally these are the things details in the note:
Current date
Names of the parties
involved address as collateral
terms of loan, which includes:
how much the loan is
how long/duration
interest rate
monthly payment (derived from interest rate)
when to pay (monthly, or at end of loan, etc...)
any penalty for late payment
any option for extending the loan duration at end of term
prepayment penalty or not
What happens if you default
As far as check deposits, you already have loan notes as proofs. I never had to provide those to banks. Sometimes banks require you to provide proof of funds by asking for 2-3 months of bank statements. So you just have to have your funds in ahead so it'll show on your statements.
Thank you, that does help allot! It's amazing how these little details can seem so intimidating when you don't know where to start, so I really appreciate you laying it out for me.