Thinking about Loaning Money to a Loved One for Their Home Purchase? Read This First

Thinking about Loaning Money to a Loved One for Their Home Purchase? Read This First

  • Heather Smith
  • 06/20/24

Interest rates are still sitting high, which is preventing many buyers from successfully purchasing a new home. As such, some buyers are exploring alternative ways to buy a home without a traditional mortgage, including getting loans from loved ones.

But if you’re considering offering a loan to a child, family member, or loved one to purchase a home, there are certain things you should know before you sign on the dotted line.

A recent article from outlined best practice for giving loans to loved ones, including:

  • Get clear from the get-go. When you’re loaning a large sum of money, it’s important to be super clear about the arrangement from the start. Discuss the terms and put it in writing; that way, if any challenges arise down the line — like a disagreement over payment terms — you have the documentation to back yourself up. You’ll also want to include clear guidance on what happens if the recipient defaults on payments.
  • Get legal guidance. As mentioned, you’ll want to get everything in writing when offering a home loan to a loved one. But don’t just write it on a piece of paper and sign it; make sure to get legal guidance on how to structure the contract.
  • Think carefully. It’s a very kind gesture to lend money to someone you care about so they can buy a home. However, it can also add extra pressure to the relationship, particularly if things go south. Before you enter a loan arrangement with a child, family member, or friend, make sure you really think it through, including how you’ll handle things if something goes wrong.

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For most families, choosing a new home is the biggest financial decision they will ever make. There are many complicated decisions involved in choosing a home. As one of the top real estate professionals in the local market, I'll negotiate the best prices and terms for you and answer all of your questions as they arise.