Borrowing from relative for (part of) mortgage?

[indimom]

I would not do it. My reasoning is a bit different than everyone else. What happens if in a year or two or three something bad happens for you or your husband, illness, injury, job loss, whatever. You can't make the monthly payment anymore. And can't sell the house for what you owe. The risk may be small, but I wouldn't want to include another family member in that risk. Interest rates are low right now, I'd just stick with a traditional bank loan.

 

[yoopermom]

It will not be treated as a gift by the IRS if you have formal paperwork including a mortgage (document recorded at the registry of deeds and burnable at the end of the 30 years) to go with the loan note, and also your relative the lender issues 1099 forms every year and enforces non-payment including via foreclosure. However he does not have to join a credit bureau for the purpose of sending them reports on you.

When the "personal" loan is used to purchase your home and secured by a mortgage on said home then the interest you pay is deductible as home mortgage interest.

It should not be callable upon his death.

Upon his death the loan, if not yet paid in full, is still in effect and his estate and then the heirs will receive the monthly payments.

I would suggest that he not do this unless he is in first position; you should pay closing costs so he can engage an attorney to ensure this. Although first position is normally established by which document is recorded first, his attorney should see to it that any other mortgage taken out at the same time specifically declares itself subordinate to his.

OP here, wanting to thank you for this detailed advice, wow. We have an excellent lawyer who we swap services with, so that part won't cost us anything.

Our credit rating is very, very good (this will be the fourth home we've owned), so I don't know that we need to worry about increasing our credit rating. We haven't had a mortgage on our current home since we built it five years ago, but with the housing market the way it is, we are not *counting* on selling it quickly (and possibly having to rent it out). Once it sells, we'd use the profit to pay off the bank mortgage.

If this would have been a huge legal/financial benefit for either DSF or ourselves, we would consider doing it. Like many have said, however, we don't want to do it if it's going to cause hard feelings down the road....

Thanks ALL, I'm taking it all under consideration...

Terri