Using Family Members for loans

[Gary McKissick]

Hello all,

I am in the process of purchasing my first rental unit and my parents have agreed to help me with the down payment on it.  Doing some reading and it suggests creating a promissory note set up properly so I can deduct the interest on tax forms.  Is it as simple as that, creating the document and signing?  I'm sure I'm missing a bunch of things here, so if anyone can provide some insight or point me to a good article/blog about the subject that would be helpful.  The loan itself is probably going to be 20k loan @ 7.5% over 10 years.

[Dion DePaoli]

Financing down payments is a NO-NO.  That creates an additional obligation of funds above and beyond what the lender who provides the rest of the debt.  It also means you actually do not have any skin in the game which a lender is going to look for.  You will need to also have money for closing costs and money in reserves to qualify for the primary loan.

You may want to look up some threads on Non Owner Occupied financing terms or Investment Property loans to gain an understanding of what a lender is going to demand from you before they consider you for a loan.  

The good news, you have some of the pieces with willing parents, by this post we can not tell if you have all of the pieces so it is tough to give too much direction on types of structures which may work for you and what you have available.  If you add a little more detail about the deal and your idea of setup, that might create more commentary around the same.