With many mortgage lenders tightening their lending qualification standards in recent months, many potential home buyers have been unable to obtain a home loan. As USA Today reports, many of them are now turning to family members to help finance their purchase.
In such a situation, family members with substantial savings give those funds to their children or relative, and agrees to be repaid at a relatively standard interest rate. That allows the home buyer to not only make a cash offer for a property, but also avoid many fees charged by mortgage lenders.
In return, the other family member will receive a fixed rate of return on their savings that is likely greater than they would get from a savings account and avoids the stock market.
However, experts say that such an arrangement is not without significant risk, as both finances and lender-buyer relations could be strained if the buyer falls behind on payments. In addition, those lending the money are tying up a great deal of their savings into one asset.
Those considering applying for a traditional mortgage may wish to review their credit reports for any inappropriate markings that are affecting their scores. A stronger report can help a borrower get the lowest interest rates on loans for which they apply.