You’ve finally decided that you’re ready to buy your own home. You’re going through the process of being qualified when you suddenly find out that you’re not going to be able to get a traditional mortgage.
There’s no shame in that – there are plenty of reasons why banks turn perfectly responsible people away, including being self-employed or having an insufficient credit history. Whatever the reason, the inability to get a bank loan means you need to find another way, and a private loan is an alternative most people turn to.
If you are considering this option and have a private lender who is willing to front you the money you need, make sure that you do things the right way. When you need to structure a private home loan to purchase your home, you should consult with a lawyer to make sure that both parties are fully protected.
A private loan can come from a business or individual, including close friends or family members, but that doesn’t mean that it should be based on a handshake and a smile. No matter how close your relationship or how much both parties trust one another, making sure that your loan is fully documented and supported by the same level of diligence is the best way to ensure that everybody involved is finally protected and that their relationship will not be jeopardized by something unexpected happening.
A private loan may feel less formal than a loan that comes from a traditional bank, and in a lot of ways, it is. It can usually be accomplished much more quickly and with far fewer hoops to jump through. But that doesn’t mean that the debt is any less real, or that the repercussions of non-payment are any less serious. Here are just a few of the things you need, and that an attorney will make sure are included:
- There are IRS rules that govern the way that interest rates are set, whether in a private loan or a traditional loan. An attorney will help ensure that your loan has followed IRS rules.
- Property condition can impact property value, and that value is important to a lender – particularly if there is a default on the loan. Your loan documents may need the language that addresses property maintenance and upkeep.
- When a traditional mortgage is approved, the bank requires titles. The document should ensure that the loan is secured, particularly so that if any additional mortgages or taken out on the property in the future, the original lender gets paid first. An attorney can also take care of running a title search and obtaining title insurance.
- An experienced attorney can also advise you on any tax issues that might arise as a result of a loan, and ensure that the documentation makes clear that the transaction is a loan rather than a gift, which could have tax ramifications for both the borrower and the lender.
A private loan needs the same meticulous level of documentation as a traditional loan does so that there are no misunderstandings about what is expected from either party. To learn more about our services, contact us today.