How do you refinance a loan from a family member into a mortgage?

4 Replies

Let's say that you want to buy land and build a fourplex, however, you are newly self employed, and you won't qualify for mortgage loans for another 2 years, since banks need a 2 year tax return history. 

However, a friend or a distant family member is willing to loan you the money for this. But, they don't want to set up a whole 30 year mortgage for you, they want their money back in 2-3 years. The relative would give cash as a loan to buy the land and build, and then 2 years later, you'd need to take out a real mortgage from the bank and pay back the relative. How would you recommend going about this process? 

Originally posted by @Ellie Narie :

Let's say that you want to buy land and build a fourplex, however, you are newly self employed, and you won't qualify for mortgage loans for another 2 years, since banks need a 2 year tax return history. 

However, a friend or a distant family member is willing to loan you the money for this. But, they don't want to set up a whole 30 year mortgage for you, they want their money back in 2-3 years. The relative would give cash as a loan to buy the land and build, and then 2 years later, you'd need to take out a real mortgage from the bank and pay back the relative. How would you recommend going about this process? 

 This isn't anything crazy. A RE lawyer can help you set it up. It's just a private mortgage with a 3 year balloon payment. If they don't want to collect payments from you, make the rate 0%. I suggest 3 not 2 since something could come up delaying it a bit.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

Ellie - obtain the funds needed to acquire the property  from friend / relative ...pay seller the  cash ...have a private note set up between yourself and donor)   with specific  terms  for repayment ...make sure the  rate  agreed to is  a realistic  market type rate ) and also make sure that a formal lien is  filed for the loan  and also make sure you formally go into the title  .........I would suggest making a separate agreement / arrangement for the  funds  you are  borrowing for the  construction ......  several  years from now when you refinance ,  the  value  of the building  should  hopefully support the loan amount  you will need  in order to  pay back  your donor

@Ellie Narie all the posts above are correct and your title company that you use to close on the property can help file the lien properly for you.  That way if you ever wanted to refinance out of that loan the next bank can see the lien and refinance you easily.  You can even google "mortgage note examples" to see some simple examples of what the verbiage of the loan (or note) can be.  Hope this helps!

Andrew Postell, Lender in Texas (#392627)
817-873-0621

@Ellie Narie This should be a very easy process. Have a lawyer draft mortgage, promissory note, and guarantee agreement (if borrower is your LLC and you will be guarantor). Your friend/relative will be 1st position lien holder. You guys work out a payment schedule and rate. At the end of 2 or 3 years when you are eligible for regular mortgage, apply for mortgage and pay off your friend/relative. Good luck.

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