Asking for a home loan from a friend or family member is difficult; even if they are people close to you. The money involved is big and you probably see each other frequently or at least once a year. If they turn you down, you might feel uncomfortable with each other. But if you could show them how it could also work for their advantage, you’ll achieve a favorable result.

• Asking for the loan

  Thomas Fox, community outreach director at Cambridge Credit Counseling said borrowers should approach a private home loan the same way they would a mortgage from a bank. Before you come talk to a relative or friend asking for a loan, you should come up with a plan or proposal.

  “Borrowers should be realistic about what a practical repayment plan would be and not try to borrow more than they can repay. You have to treat it the same as any kind of loan and be realistic,” he says.

  When you have a contract for the loan, even if it is with your parents, they can sue you for missed payments.

• What private home loans have in common with traditional loans
  Private home loans or private mortgages are also called intrafamily mortgages. They are not very different from a loan you could get from a bank or credit union.
  • Both parties – lender and borrower, sign a promisory note or a mortgage note. This note contains the terms of your agreement.
  • The promisory note states the following: amount that was borrowed; the interest rate; frequency and date of payments.
  • There will be a deed of trust which gives the lender the right to foreclose the property when the borrower fails to pay according to the payment plan.
  • The lender holds a lien on the mortgaged property.

  This set-up is also for the protection of the borrower. The lender cannot ask for full payment abruptly or foreclose on the property because of personal reasons. Your friend or relative can’t just change the payment plan because they changed their mind and want the money back.

• How borrowers can benefit from private home loans
  • You can get better interest rates. You can negotiate with the lender interest rates that is more reachable for you. The lender can still benefit from this arrangement even if the interest rates you propose is less than what the banks apply.
  • You can propose a payment term that’s doable for you. It can be monthly, semi-weekly or any other. But even if your lender is generous, don’t take advantage. Live up to the terms you agreed on. 
  • Federal tax deductions that apply to institutional loans can also be applied to private home loans.
• How Lenders Benefit from private home loans
  • Even if the interest rates your proposed are less than what the bank applies, they can still get more compared to other investments like a savings account in the bank or other investment.
  • This will give your friend or family extra income. The promisory note gives them a sense of assurance that they can expect a certain amount from you based on what was agreed upon.
• What happens if you miss payments?

  Sometimes unexpected things happen that will cause us to miss payments. You might suddenly lose your job or accumulate medical costs that you didn’t financially plan for. Discuss this situation with your lender. This also applies to institutional loans. The loan can be modified like lowering or postponing the payments but for a longer loan term. But don’t avoid your lender’s calls. It might lead to more problems.

Usually, spring and summer is the busiest time in residential real estate. Most families want to take advantage of the good weather and the children’s summer break. However in most regions, spring is also when houses are most expensive. During this time, there are a lot of buyers and competition is tough.

Here are some measures you can take that can give you an advantage over other buyers:

• If you plan to work with a real estate agent, start early. Interview three to four agents and talk to their references as well. Once you have chosen, let the agent know exactly what you’re looking for. Be specific and detailed. 
• Get your loan pre-approved. By doing this early, you have one less task to think about. You’ll also know how much you can borrow. This will save you from looking at houses you can’t afford. And when you make an offer with a pre-approved loan, the sellers know that you’re serious.
• Determine how much you can afford for downpayment. According to NAR, first-time buyers usually make a down payment of 6 percent on a home purchase, and 24 percent of down payment funds were gifts from relatives or friends. If you don’t have this option, you can turn to loan programs that accept 5-3 percent downpayment. Closing costs typically range from 2-7 percent of the property cost. 
• Always be ready for your agent’s call. If the competition is tight, as soon as your realtor finds a good deal that is up to your criteria, they’ll notify you. Be ready to visit the house and once you determine that it’s going to be a good buy, make an offer. 
• When you look at houses, consider the potential. There are some things you cannot change like the neighborhood, proximity to job centers and schools, the basic floorplan of the house, and size of the back yard. But don’t turn your back on a house because you don’t like the color of the paint, the design of the carpet or wallpaper. These are things you can change according to your taste. Try to imagine the house with the furniture and carpet which you think goes best with the house.  Do you ike it now?
• If you’re in a seller’s market consut your real estate agent on how much you should offer. If there’s competition, consider offering more than the listing price. Avoid asking for a long closing date or extras like carpet allowances. 
• Start thinking about home insurance now. Start by checking that your credit report is accurate. The accuracy of your credit repor is very important. It will determine if a company will cover you and for how much. According to the Insurance Information Institute, you should get a copy of your loss history report like a CLUE report from ChoicePoint or an A-PLUS report from Insurance Services Office. They record home insurance claims. If you weren’t able to file a claim in the past five years, you won’t have a loss history report. This gives you a better report and a lower premium. If you previously rented, you should have renter’s insurance. Your insurance history will be helpful when you apply for insurance for your new home. 

Buying a home is expensive. A lot of people want to have a home of their own but do not have enough cash or can’t get enough funding to afford a mortgage. On the other hand some people are looking for ways to be able to take advantage of tax benefits from being a home owner. So they turn to co-buying.

“Neither of us had a big enough chunk of money to put down for a home in a desirable neighborhood,” Brian Free told the U.S. News & World Report about his decision to purchase a home with his friend. “However, aggregating our resources allowed us to find a home that suited our needs.”

However, co-owning anything with a friend or relative comes with risks. But there are things you can do to reduce the risk of running into problems. Careful delibiration and planning is a must.

• Think about how you will hold title

  The decision on how to hold title will affect your say in legal documents. Unmarried co-buyers can share a title as TIC (tenants in common) or as JTWROS (joint tenants with right of survivorship). Co-owners who are married can take title via community property or tenancy by the entirety.

• TIC versus JTWROS

  With JTWROS both owners have equal shares in a home. When a co-owner has passed away, his share will go to the other owners. Consequently this means that the last surviving owner gets all the shares. In a TIC, the shares may or may not be equal. Each co-owner has its own title. Right of survivorship doesn’t work in TICs. When a co-owner dies, his share will not go to surviving co-owners. Each co-owner can pass their share to their family members or whoever they want to will it to. TICs can be dissolved if a co-owner buys out the share of the other co-owner/s. Or to sell the home, one co-owner can file a partition action.

• The similarities of a TIC and JTWROS

  In both ownership arrangements, owners have rights to the property. If it is rented or sold, co-owners each receive each will receive a part of the money that is according to their shares.

• Secure a co-ownership agreement

  It is important to lay the ground rules and protect your share. It is wise to make things clear for all parties involved before problems arise. No matter how close you are with the co-owners, there is always a possibility that ownership issues will be challenged. A co-ownership agreement can help resolve the issue.

• What are the ownership percentages?

  Joint tenants have equal shares. Co-owners in a TIC agreement can divide the shares based on the amount that each has put in for the downpayment.

• How are ongoing costs divided?

  They refer to ongoing costs like mortgage payments, property taxes, insurance, utilities and maintenance. The division of expenses like this should be part of the co-ownership agreement. Co-owners may divide this according to their shares or according to the amount of time each co-owner will put in in maintaining or improving the property. You may want to open a joint checking account so each co-owner can withdraw from this account to pay for ongoing expenses.

• What if a co-owner wants to sell?

  The co-owner who wants to sell does not need to get the approval of the other co-owner as to whom they could sell it to. However, the other co-owner can object to the sale because of their right of first refusal.

When you enter into the buying process, you will be commited despite all the uncertainties involved. By adding contingencies clauses in the contract, the buyer feels a sense of protection from the unknowns. Contingencies clauses state things that need to be met before closing the sale. 

• The protection buyers get from mortgage contingenciesThis is one of the most common contingency. It provides additional security for the buyer. This contingency states that the buyer will acquire a certain kind of mortgage at or below a certain interest rate for a particular amount of the purchase price (usually 80 percent) on or before a specific date before closing. If the buyer is unable to get a loan according to the terms stated on the contingency, he can withdraw from the contract and the earnest money will be given back to him.
• Protection for sellersThe security that comes with contingencies protects not only the buyer but the seller as well. If the buyer is unable to secure a loan but fails to inform the seller by the date agreed, the buyer is still obliged to buy the house with or without a loan. Depending on the contingency, the seller can also find a mortgage for the buyer. To provide more protection for the seller, they could do the following: set an earlier date for the deadline so the buyer can’t back out at the last minute; negotiate that a significant part of the earnest money will be forfeited if the buyer can’t get a loan by the deadline.
• Appraisal contingencyAppraisal contingencies work with mortgage contingencies. It can work in two ways: (1) If a buyer cannot get an appraisal that can cover the asking price, the buyer can back out of the sale; (2) If the buyer cannot acquire enough appraisal, the buyer can negotiate for a lower price. If the seller does not agree with it, the buyer can walk out of the sale.
• Inspection contingencyThis contingency allows the buyer time to inspect the house. Typically the time frame is 3-14 days. If the inspection reveal major problems with the house, the buyer can opt to back out.There are many other contingencies available like insurance contingencies or mold inspection contingencies. Common contingencies vary among states.Never disregard fine prints. Read them carefully and make sure you understand what you’re about to sign. The contract is legally binding. You can’t just change your mind once you sign it.

Finding your perfect home starts with searching for your kind of neighborhood.

What is so important with a good neighborhood? The environment you live in affects your lifestyle and quality of life for you and your family. You may want to live near a park so you and your kids can often walk there and they could play with other kids. Others want to live in a quiet suburb so after a hard day’s work they could retire to a relaxing home. For some a perfect neighborhood should be close to busy commercial districts where shopping and dining is convenient.

The search for a perfect neighborhood starts with driving around, especially in areas you’re not familiar with. Take note of neighborhoods that interest to you. Walk around to get a better feel. See if the houses are well-maintained.

If you have children, you might be looking for a safe, kid-friendly neighborhood. You’ll also want to think about these things:

• Are there good schools in the area?
• How is the crime rate?
• Are there grocery stores nearby?
• Is theproperty value likely to increase?

If you work with a realtor they should be able to tell youthings you want to know about the neighborhood you’re interested in.

• School

  Even if you don’t have children, there’s a good reason for living near a good school. Properties near a reputable school is more likely to appreciate in value. Years from now if you sell your house, you will be able to sell it at a high price in no time. Properties like this are attractive to buyers. If you want to know more information about the schools in the area you’re eyeing, you can conveniently do this online. You can just search for the zip code or geographical area and you’ll be able to find ratings for the school system as well as standardized test scores. You can also ask your realtor about the school/s. Or try talking to neighbors with children who go to the school. If you have kids the best thing to do to validate your research is to visit the school yourself or with the kids. And get the feel of the school.

• Crime Record

  This is a very important aspect you should look at. The good news is, you can easily find information online. There are websites where you can see statistics on crime and other relevant information. Homestore allows you to search for crime data and school information in the area you are searching for. Just enter the zip code or city you choose. The site can also give a comparison of crime rates between another area.

  You can also do these as you research:

  • Observe if the windows and doors of the houses in the neighborhood have bars.
  • Look out for graffiti and vandalism on walls and walkways.
  • Talk to neighbors.
  • Ask the police or sheriff’s office.
  • If you’re looking in town or in busy areas, nooise and traffic is expected.

Go beyond facts and figures. Don’t focus too much on the value of your investment. There other important factors to consider aside from this. Like the convenience it offers to work and school; its proximity to restaurants and shopping centers; or even just the relaxing feel it can give you and your family. But usually property value is a reflection of the area’s overall health. When you do your research find out as well how much property taxes have gone up over the past few years.