Buying a home in today's real estate market is costly, and not everyone has the money to do so, but this can be alleviated with the help of a loan. For some, it is more practical to borrow from friends or family than a bank, as the interest rates are obviously lower with friends and family. That being said, dealing with friends and family with regards to money isn’t always a pleasant and easy experience.
To ask a friend or family member for money can be tricky, especially when it comes to asking for a large amount to help out with a loan to buy a home.
Having a plan in mind is key to getting a loan from a family member or friend. The home buyer should approach them as they would a bank. The home buyer should be realistic about a practical repayment plan and should ensure not to borrow more than they will be able to pay back.
A private home loan is the best approach to get a family member or friend to lend money. When dealing with an actual legally binding contract, family and friends become more inclined to lend, for obvious reasons.
A private home loan isn’t much different than a bank or credit union loan. A private home loan ensures that both the lender and borrower sign a promissory note, which states the terms of the agreement. This note established the amount loaned and the interest rate, as well as repayment dates and frequency.
With a private home loan, an arrangement between the home buyer and lender is arranged in such a way that both the lender and home buyer are legally protected, but more than that, both the home buyer, the borrower, and the lender, receive a benefit from a private home loan.
The borrower, the home buyer, receives better interest rates, ability to set up own repayment terms, and federal tax reductions. With a private home loan, the home buyer can still take the same tax deductions that they would with an institutional loan.
The lender receives better interest rates as well, and also regular income that comes from the repayment of the loan.
Search Realty advises that when it comes to a private home loan, the mutual benefits received by both the borrower and lender make it desirable, but more than that, the lender, be it a family member or friend, has the added benefit of knowing that they were there to help someone close to them achieve a lifelong dream of having their own home.