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!