How to Loan Money to Someone for a House
It's tempting to want to loan money to someone for a house, particularly when that someone is a family member or close friend. Unfortunately, loaning money to family can create a lot of unrest, especially if the person doesn't repay the money. If you're going to give someone a personal loan, make things official by charging interest and signing a contract.
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Instructions
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Discuss the terms of the loan with the individual. Determine whether you want the money paid back with interest or not. Make it very clear that the money is a loan and not a gift.
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Talk to a tax professional. If the individual is going to pay interest on the money that you loan her, you can be taxed on that interest. Even if you don't charge interest, you may have "imputed interest"--interest that is considered to be paid even though no money has changed hands.
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Create a formal contract. This should state the terms of the loan, such as the interest rate and the length of the loan. You should also set a monthly due date so that the person is sure to pay you back in a timely fashion.
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Tips & Warnings
An intermediary company, such as Virgin Money, can help with financial transactions between family members. If the person does not pay the money back, it is this company that will try to get your money--not you--which can ease family tensions.
When lending money to family, you run the risk of not receiving that money back. Only loan money that you can afford to give. You shouldn't count on the monthly payments coming back to you.
