Date Posted: 2012-09-27 03:43:24
Site Posted: Myproperty.ph
In a previous article about raising money to buy a house, one of the proposed options was to borrow from family members. As good an idea as it may sound, asking your parents or other relatives for a loan is much more complicated than it looks; you’re talking about mixing family with your investment, so you have to take certain precautions. If you feel that you’re ready to proceed, here are some things that you should keep in mind:
1. Like it or not, borrowing money is a business so you have to treat it as such. Produce a contract that contains how much you want to loan, how much you can pay per month and the interest. Make sure that both parties are amenable to all the clauses included before signing the papers.
2. Always pay on the date that you both decided on or even a day earlier, but never later unless you have a particular agreement about late payments. Remember that your relative loaned you money in good faith, so you don’t want to lose that trust.
3. Your ‘lender’ will need some sort of guarantee other than your word that you intend to pay him back. If you own something of great value, like a car, put it up as collateral.
4. Borrowing money to buy a house means that you don’t have enough on you right now. Don’t go around spending money on things that are considered as luxuries, such as a car, a new television or a vacation. Put off these purchases until you’ve paid back the money you owe.
5. Keep from straying too far from the contract to avoid confusion. If you want to pay a bigger amount this month because you received a bonus, make it clear that this won’t be a regular thing so your relative won’t expect this every month. Also, if you’re out with your lender, don’t say things like “I’ll pay for dinner but subtract it from the money I still owe you” unless he specifically suggests it.
When you ask for a home loan from a family member, there’s always the risk that people will assume you’ll take advantage of the fact that you’re related to each other by being lax about the whole thing. Don’t give them a reason to think this way about you; keep the arrangement as professional as possible and take your responsibility seriously.
Jillian Cariola, Writer
Image attribution:
Thumbnail: Vladislav Gajic
This page: FreeDigitalPhotos.net
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