Taking home loan from Family Trust

[Matthew Keyes]

Hi all!

Looking for pros and cons as well as any additional foresight for the following scenario:

We are looking into buying property and building a new construction.  While the bank has no issue loaning me more money than I could ever afford, there seems to be a lot of red tape around selling our current home, the builder plans being approved, 20% money down, and other bank requirements I probably have not encountered yet.   

However, our family has a trust with double if not triple the funds we would need...I believe it currently accrues less than 2% in interest.  Hypothetically, could we borrow from the trust (lets say at 3% to make it a win-win), complete the construction and promptly refinance/home equity loan to put the funds back into the trust (for their personal comfort).  I may be naive in thinking this is a rather simple solution.  What pitfalls may we encounter?  What documentation could we use to make it legal and allow them peace of mind?

And........go!

[Michael Ealy]

Originally posted by @Matthew Keyes:

Hi all!

Looking for pros and cons as well as any additional foresight for the following scenario:

We are looking into buying property and building a new construction.  While the bank has no issue loaning me more money than I could ever afford, there seems to be a lot of red tape around selling our current home, the builder plans being approved, 20% money down, and other bank requirements I probably have not encountered yet.   

However, our family has a trust with double if not triple the funds we would need...I believe it currently accrues less than 2% in interest.  Hypothetically, could we borrow from the trust (lets say at 3% to make it a win-win), complete the construction and promptly refinance/home equity loan to put the funds back into the trust (for their personal comfort).  I may be naive in thinking this is a rather simple solution.  What pitfalls may we encounter?  What documentation could we use to make it legal and allow them peace of mind?

And........go!

Yes you can borrow from your family trust.

To make it SAFE for the family trust, the family trust can put a first mortgage lien on your property collateralized by the loan from the trust. So if you can't pay back the family trust, the family trust can foreclose and get your property.

Have a real estate attorney licensed in your state put together the mortgage and promissory note documents - with the Trustee as signatory.