Funding from Friends and family

3 Replies

Hi group.  I have listened to almost all of the podcasts (some more than once) and in several instances the guest identifies that they asked friends or family to help them raise the required down payment for an investment.   

Assuming the bank will have the 1st lien position, how do you set up the down payment contract?   Is it a plain promissory note  with a specific interest rate or do you offer them the 2nd lien position on the title?

Anybody have any real life examples they could walk me through?

thanks as always.


The folks I know who have done this haven't placed a formal lien; it was just done with a handshake and a promissory note that wasn't officially tied to any collateral. 

If your lender wants some more formal protection, then yes you'd need to offer them the 2nd lien, title to your car, or at a minimum free foot rubs for a year.

Typically, if you are going to a bank to get the loan they are not going to want to see that the downpayment came from someone other than yourself.  You could work with your friends and family and tell them after closing on house purchase you will put a second lein on the property to secure their interest but they would have to rely on the promissory note to that point.  It does depend on the kind of asset you are buying.