How does private loan affect conventional loan?

2 Replies

Hello BP,

I'm looking to finance my first duplex (house hack) with a conventional loan, however I won't have the necessary funds by the time I need to purchase (tentatively need to move in June 1st) for a down payment, closing costs (hopefully seller paid, but I'm not going to count on that), and reserves (1 month of PITI). For this reason, I'm considering a private loan (not a gift) from a friend, which I would be paying back over a certain amount of years, to cover the difference.

My question is how receiving a private loan will affect my ability to receive the conventional loan. I know it will affect my DTI ratio but I believe that should still be low enough to qualify for the conventional loan.

Should I receive the private loan early enough to let the cash season (60 days I believe)? Is that necessary?

Any input or advice is greatly appreciated! Thanks!

@Alex Hogenson - I like your idea. I have a couple of blog posts titled AH BANKS! Pardon My French Part 1 & 2. Horror stories of dealing with banks. Do what you can to not repeat my steps; it sounds like you're on the right track. In addition to your statements, the bank will most likely want to a letter of information confirming large deposits. You also will have to disclose all open credits owed, regardless if they are private or not. 

If your private loan affects your DTI to the point the bank want proceed with the conventional loan, is it possible for you to partner with your friend on the deal and pay them back on a cash out refinance X number of years down the road?

@Jay Helms I will definitely check those blog posts out!

I like the idea of the cash out refinance - payback after a certain amount of years! I will dive deeper into my before/after DTI ratio and possibly bring that option up with my private lender and see if we can work something out.

Thank you for your input!