Buying a house is usually the biggest investment a person can undertake. Many folks save for years to gather enough of a down payment to finally gain the keys to home ownership, and many folks resort to borrowing to get that down payment. Borrowing from family or friends for the purchase of a home is not unheard of, and is in fact quite common.
Of course, the bank or mortgage company will want to know where the money came from, and buyers can state that the money was borrowed or tell a white lie and say the money is from savings. Still, borrowing money from family or friends for the purchase of a house has consequences, and can strain or strengthen a relationship. The real test is generally the amount of money involved and the good faith repayment of the unofficial loan.
On the plus side, borrowing from family or friends means very little paperwork and no credit check. Since the terms of the loan are likely to be favorable to the borrower, interest is usually kept to a minimum, and the amount of the loan is usually only limited to the capacity of the lenders. Of course, no official repayment schedule means flexible payments, no late chargers, and someone who understands what the borrower is going through. Again, the resources of the lender are generally something the borrower may know very little about, and can greatly affect the repayment of the debt.
Should the friend or family member encounter an unforeseen medical bill or other financial hurdle, things can get testy, to say the least. Depending on the size of the marker, the borrower can feel obligated to cut back expenses when interacting with the pal or family member. That means ordering the hamburger instead of the steak whenever together, and the situation does not necessarily have to be like that at all. Therefore, it is extremely important to spell out the terms of repayment clearly, so that both parties are able to live up their ends of the agreement.
The real problem with borrowing money from family or friends for home purchase is when financial difficulties present themselves, and they always do. The normal course of life means sometimes the car needs tires, the hot water tank needs replaced, and the kids need new shoes, usually all at the same time. The problem here is that a loan that affects a valuable relationship is usually a loan not worth having, and owing someone money and not being able to pay will affect the relationship on some level. That being said, working in some free pass months into the original agreement can remove the pressure on the part of the borrower, as long as the lender is keen on having them their. Remember, if your family and friends can not understand that a lot of things went south all at once, the chances of an actual mortgage company or bank understanding are less than zero.
All things considered, as long as the terms are spelled out and the repayment plan is flexible enough to allow bother parties to be comfortable, the loan will likely strengthen the bond. If the amount is too high and the borrower can not or does not repay, the result is usually a lost connection and a lot of hurt feelings (in today’s world probably a bad Facebook or Tweet as well). That being said, this is a situation that needs to be handled carefully, regardless of the amount of money involved.