loan from relative, Financing advice

3 Replies

I have a deal where a relative of mine sent me about 20k to buy a house for his son to go to school. The plan was I would assume the loan, he would donate the money, and would also receive interest in the property.

I few months later House is purchased but I found out there is a clause in the mortgage for the lender to call the note if any interest is transferred. So now the relative wants the money back right now or wants to turn sent money into a loan with the security being the house. The way I would pay off his version of the loan would be to let his son live there for free and deduct an amount each month until its balanced. I did not like this solution because it means negative cashflow and I would question the enforceable of the lease.

Right now, I have about 10k in cash, and 5k in credit card balance. Looked into getting a small personal loan but all offers seems to have unreasonably high interest.

What do you think is my best solution in this situation?

Should I go for the small personal loan that is at least unattached to the house?

Or maybe I should split the interest like the original plan and pray that the mortgage lender never finds out.

Thanks,

@Xavier Xthrax the clause you are referring to in a "conforming" or "FHA" loan is commonly referred to as the "due on sale" clause. Without getting into too many details here, as long as you pay that mortgage on time, the bank will not care who is on title. If you are trying to get a different loan type then please let me know. Hope this helps!

Originally posted by @Andrew Postell :

@Xavier Xthrax the clause you are referring to in a "conforming" or "FHA" loan is commonly referred to as the "due on sale" clause. Without getting into too many details here, as long as you pay that mortgage on time, the bank will not care who is on title. If you are trying to get a different loan type then please let me know. Hope this helps!

 Looks like you have been doing this for a while. How many times have you had a note called because of the due on sale clause. It keeps me up at night.

@Xavier Xthrax I have never had a loan be called due because of this clause.  The clause itself does help a bank foreclose on a property.  But banks don't want to foreclose if you are paying on time.  Not sure if you remember the housing crises about 10 years ago but people absolutely hated banks at the time.  People weren't paying their mortgages and banks were foreclosing on them.  Could you imagine the backlash if banks foreclosed on people who were paying on time?  Banks don't want to go through that.  They make a TON of money on your loan.  They lose money when they foreclose.  They want your mortgage to stay put.  

On top of all of this the due on sale clause is not even legal in every state.  The clause itself states that the bank MAY call the note due.  And if they do, they have to give you at least 30 days to rectify the problem.

Just pay that mortgage on time and all will be ok.

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