Everyone could use a little financial help at some point from family and friends. That help could come in the form of a loan towards buying your first home.
Often times, buyers are only thinking about coming up with sufficient funds for the down payment to get started on home ownership. This leads many first time buyers to think that the money borrowed from family should only be applied towards the down payment. (Inform your mortgage banker whether the money from family is a loan or whether it is gift money.)
On a more creative level, the money borrowed from family can be applied as a second mortgage. For example, if the home appraisal comes in lower than expected, it will force the bank to lend you less than anticipated. The bank can now only lend you 70K out of the initial 80K you applied for. While the purchase price remains unchanged at 100K, with your down payment of 20K, your funding still comes up short 10K. Applying some creativity, it would be feasible to get a 10K loan from family as a second mortgage.
This creates a situation where the buyer will have 2 loans (70K from bank, and 10K from family) to repay each month, but guarantees the buyer a way to new home ownership.
The bolder move and one that new buyers could try is take a loan from family and friends to finance the whole purchase price, completely bypassing mortgage lenders. This type of first mortgage is a win win situation for both parties. The buyer don’t have to deal with all the fees that come with borrowing from traditional mortgage lenders such as banks and lending companies. Families and friends get to share your happiness of home ownership while allowing their money to earn at a higher interest rate than saving it at the bank.
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