Private Lending Question - Small loan amount

[Christopher Roy]

Hey guys, first off I want to thank everyone for all of their help. I am looking to move forward on my first buy and hold property because of all the things I have learned from this website. I have convinced a seller to finance the deal with a small amount down! I have a business partner (best friend) who is willing to lend me the downpayment ($6,000). Neither of us have ever dealt with private lending and don't know how to properly do this. He understands he's making less than 2% in the bank so he does not mind lending me the cash for a better return.

My questions:

How do we structure this deal so that I am not screwing him?

How long of a term should the loan be for? (he doesn't mind it being a few years as long as he's collecting a higher percent than what he is getting from his bank annually)

What legal paperwork should I draw up for ease of mind?

What percentage rate should we use?

Thank you all for your input, it has time and time again proved priceless!

[Bill Gulley]

All you questions have been answered in detail here, might do some searching before you leap. Matt's deal is with his sister, so that lending arrangement is exempt. Points can only be charged by institutional or regulated lenders, you buddy can't legally charge points. Points are prepaid interest. Equity loans may not have points. Your title company will be able to do the deeds, you might need an attorney for the note. Read the seller financing scams here on BP, any offer of seller financing is usually done for a reason, need to know why. Also, check the minimum loan amount that may be secured in your state, here, it's $5K others are 10K. Again, see your attorney. Absolutely use a loan servicer! Good luck :)