THis would be on a rental.
A colleague of mine and I are always talking about investment options, etc. We've both been smart with our money and are looking to scale. I brought a deal to the table in which we could partner 50/50 or, if they preferred, they could basic loan me money to reduce the amount of cash I have to come up with to close on the property.
When I asked what rate they would want to charge, they basically said "you're one of my best friends. If it will help you, I will just give you the money and we'll write up something for you to pay me back at no cost."
This is totally unacceptable to me. I would feel I'm taking advantage of their charity which I don't need. I could come up with all the cash today, but am looking to minimize risk.
How would you handle this situation? The amount would probably be about $50,000 for about 40% of a downpayment on a multi family unity that I'm acquiring for just under $500,000.
It's good of you to think about the interests of your colleague lender.
Beware that your primary lender may not approve of you having a formal loan agreement for down payment money. You'll need to check with the first position lender. Some don't allow second positions at all. Assuming they do, your friend will be in a second position with, let's say, $50K and will have a deed-of-trust or mortgage agreement that your closing attorney can draft for closing. If you value your relationship with your colleague, I'd peg the rate at the same rate and terms as your first position lender at a minimum.
It's good of you to think about the interests of your colleague lender.
Beware that your primary lender may not approve of you having a formal loan agreement for down payment money. You'll need to check with the first position lender. Some don't allow second positions at all. Assuming they do, your friend will be in a second position with, let's say, $50K and will have a deed-of-trust or mortgage agreement that your closing attorney can draft for closing. If you value your relationship with your colleague, I'd peg the rate at the same rate and terms as your first position lender at a minimum.
How would my mortgage lender ever know?
?
Per your post, the use is: "...$50,000 for about 40% of a downpayment on a multi family..."
The way borrowers protect their lenders is by issuing a D-T (or mortgage) when they receive money. The "correct" way to structure your deal, from what you have posted, is to have the closing attorney have your colleague lender recorded as a $50K second position lien holder, and the primary lender as first position. All this paperwork will be prepared by your closing attorney and reviewed/accepted by the bank's underwriter.
If you are suggesting you borrow the money without any security instrument for your colleague lender and not let the primary lender (the bank) know what you are doing (e.g. concealing the $50K borrowed and signing your borrower's affidavit anyway), then I take back the first sentence of my first post.
An alternative is for you as borrower to fund the down payment yourself. Then after closing, make a second lien from your colleague borrower. I doubt you would be able to use the same closing attorney if the lender's closing instructions prohibit second position liens.
Another alternative, although no longer a loan, is to go 50/50 and add the colleague to your deeded interest....
Is this a Fannie Mae multi-family loan?
?
Per your post, the use is: "...$50,000 for about 40% of a downpayment on a multi family..."
The way borrowers protect their lenders is by issuing a D-T (or mortgage) when they receive money. The "correct" way to structure your deal, from what you have posted, is to have the closing attorney have your colleague lender recorded as a $50K second position lien holder, and the primary lender as first position. All this paperwork will be prepared by your closing attorney and reviewed/accepted by the bank's underwriter.
If you are suggesting you borrow the money without any security instrument for your colleague lender and not let the primary lender (the bank) know what you are doing (e.g. concealing the $50K borrowed and signing your borrower's affidavit anyway), then I take back the first sentence of my first post.
An alternative is for you as borrower to fund the down payment yourself. Then after closing, make a second lien from your colleague borrower. I doubt you would be able to use the same closing attorney if the lender's closing instructions prohibit second position liens.
Another alternative, although no longer a loan, is to go 50/50 and add the colleague to your deeded interest....
Is this a Fannie Mae multi-family loan?
I've not considered a Fannie May multi family loan. Should I? What are the pros / cons I doing that?