Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
Intra- Family loans are just loans between family. The benefit would be lower interest rates for borrower and higher interest rates for the lender (compared to holding money in CD or bank)nerdwallet heres a brief article about these type of loans.
Anyways. I was wondering what you all suggest as to how I go about this:
1: personal loan, have him wire me money and I pay as cash buyer.
(Benefits- this might allow me to pull out more money in future out of the property as it won't show up in credit checks etc -allow me to make future RE investment purchases if I pull a line of credit or loan)
OR
2: I could SECURE the loan using this as my primary residence. I believe I would have to document this on the deed
(Benefits: Primary residence-write off full interest amount yearly off of Tax returns. Will help build credit worthiness with history of mortgage payments)
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
13y
If I was the person loaning you money (family or not) I would request it be a recorded mortgage on the property and for everyone's protection get it in writing. Family members get sick or sometimes die or even get married and there will be questions about what was the agreement, what are the terms, how are you computing the interest and what is still owed. You can get a private mortgage legally recorded. It also addresses the question of what is a gift and what is a loan. There is also a tax advantage of the interest statement on the property which would need to be issued by the lending party each year creating the documentation on the loan.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
13y
If I was the person loaning you money (family or not) I would request it be a recorded mortgage on the property and for everyone's protection get it in writing. Family members get sick or sometimes die or even get married and there will be questions about what was the agreement, what are the terms, how are you computing the interest and what is still owed. You can get a private mortgage legally recorded. It also addresses the question of what is a gift and what is a loan. There is also a tax advantage of the interest statement on the property which would need to be issued by the lending party each year creating the documentation on the loan.
Peoria, IL · Member since 2011 · 365 posts · 182 votes
13y
I have bought several with loans funded by my grandmother's trust. I get a deposit in my account, make offers and close like it was a cash sale, then the next day do paperwork for a note and mortgage and record the note. Best of both worlds: its recorded and the trust's interests are protected, I get to make a cash offer.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
13y
I wouldn’t touch any of the companies in the link you provided, @Will F. To be fair, you’ll want your family member to be secured by your house. At minimum, this will involve a note and a recorded deed of trust.
I assume this will be a CA loan? The easiest, fastest, safest way to do this for you and your family member would be to find a licensed RE broker, with mortgage experience, and ask them to explain how to do this or do it for you. Alternately, you could do it yourself with a cooperating escrow & title company. Either will provide you with the necessary documents and record them for you as required. Or, you could record the DOT yourself. Just keep your interest rate below 10% APR to avoid usury.
To be fair, both you and your family member should understand the risks. This could be a safe position for them or not, depending upon the equity in your property. I assume this would be a second? You, your broker, or escrow, should explain to your family member that if there is not enough equity, they could be wiped out in the event of your default. They would also have the right to foreclose if you didn’t make your payments. To be doubly fair, they should at least ask title to do a title search so they can confirm all liens. Trust, but verified.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Few late night comments dealing with insomnia....LOL
Good stuff Jeff.
You can borrow from immediate family without regulatory issues spooking you family transactions are exempt from brokerage lending. That may not be the case for borrowing money to purchase notes, so check in your state, but RE, yes.
Loans should always be at arm's length, at current rates and terms for similar loans, not saying you can't have a great loan, just saying don't mess around making it a funny money loan. Reason is, that there are other events in life where that loan may be viewed under other legal requirements, in qualification for benefits, asset determinations, estate issues, law suits and other messes where a funny money loan cab be brought back or discounted with adverse effects if it is not made at arm's length.
Any significant loan should be treated as a business transaction with a formal note and in RE secured by a deed of trust. Interest needs to be paid and you can take the deductions as paid, collected and claimed on the other end. Do title work, the lender's policy should be free with an owner's policy.
Nothing ticks off other family members like finding out that Joey borrowed most of the money and hasn't made a payment, especially when at the reading of a Will and estate settlement. Consider letting others know what you are doing when you do it with family money. Money disputes break up families.
As to building credit, this won't happen with private notes unless you use a loan servicer who reports for credit purposes, your lender can't report credit. When applying for other loans, unless a servicer is used, you need to show cancelled checks for payments made, credit for payment will be given the day the check is cleared, not written, so make sure payments don't sit in a drawer thinking mom is helping you out by letting the checks float awhile.
Add the lender as a mortgagee on your insurance, you could die in that fire. :)
SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes
13y
I have used family for hard money loans in the past,,much better rates than HML!
No problem on refinance, we just made sure the title company did the paperwork just like any other hard money loan,,,great for me, great for family lender