If you are wanting money lending for a home purchase, going the private mortgage lenders route is not a bad way to go. A private mortgage is money lending by a business or individual who is not a traditional mortgage lender company. Truth be told if not done very carefully, this strategy can end up very badly for you. But when done well, it almost always proves extremely beneficial for all parties involved. The fact that it can go bad if not done very carefully but that it can result in huge benefits is a good reason why is it not a bad idea to do the private mortgage with someone you already know well and trust.
While the world is full of private mortgage lenders, it can often prove enormously difficult to be approved. Traditional moneylenders often require mountains of proof that you will be able to pay back the loan. Even after you do get it, it is often a very slow tedious process. And many times, money seekers will end up being denied the loan. Getting a loan from a traditional mortgage is so difficult and so tedious, that many wannabe homeowners are discouraged away from buying a home at all not realizing the private mortgage option at all.
Getting this loan from a close family member or friend may be the best option. This is more than just a second-best option. It is usually the best option since this will mean that the interest rates will remain low. You should only do this transaction with a person if you know your relationship is very strong and won’t weaken before the lending relationship ends. If it sours, they could decide to go much stricter, perhaps unreasonable, on the interest and deadlines. You will also want to consider the lenders level of responsibility and reliability in money matters.
In other words, you will want to consider if they will even be able to make the transaction and see it to completion regardless of whether they are a very close friend or family. If you decide that this person is trustworthy enough, that your relationship is strong enough, and that they are financially responsible and capable enough, you need to decide on some ground rules to make the whole process as smooth and beneficial as possible. The first thing you will want to do is to agree upon all the ground rules, put them on in writing, have both parties sign it and then file it with both the IRS and local authorities.
To do the whole recording and filing procedures you may need the services of a lawyer and chartered public accountant. During the ground rules decision phase of this, you will want to agree upon a reasonable interest rate. Having one at all may be objectionable to both parties, particularly if it’s family. However, you should be aware that having an interest rate, no matter how small, will probably end up being in the best interest in both of you: the lender will beat inflation and the borrower will get more tax benefits.
While the interest rate will be the most important part of the form, be also be sure to discuss what the procedure should be if any possible complications occur. For instance, you will definitely discuss the procedure should either lender or borrower encounter some sort of financial difficulty during this elongated financial transaction.