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Cousin Bubba wants a mortgage loan — from you!

Whether you’ve won the lottery, profited from investments or just been diligent about building a nest egg, it’s possible that at some point a family member may come looking for some cash. If you’re really rolling in dough, you may even be asked to help with a mortgage loan. But should you get involved with such an important — and sizable — financial transaction?

First-time home buyers

A recent National Association of Realtors survey found that 7 percent of first-time home buyers relied on a loan received from a family member or friend to buy a home. At first glace this may seem like a bad idea all around, but there may be some cases in which becoming a relative’s mortgage lender makes sense. Use this checklist to decide if this is a lucrative financial opportunity or a potential disaster.

  1. Do you really have enough cash on hand to help your relative pay for a house? Do you have a hefty retirement fund and college savings for your kids? Are you going to struggle to pay daily expenses? Will you make more off the interest than with current savings and investments? A financial adviser can help review your situation to determine whether giving a relative a mortgage is a smart move or financial suicide.
  2. Is your relative responsible with money? If everyone in the family knows that Cousin Bubba is a deadbeat who is constantly dodging creditors, run the other way when approached for a home loan. Sure, you may want to help out your relative, but do you really want to get tangled up in his financial messes?
  3. Will a mortgage loan negatively affect your relationship? Just because you become your relative’s mortgage lender doesn’t mean you’ll have a say in how they maintain their home. Can you bite your tongue when he makes home improvements you absolutely can’t stand? Refrain from constantly making suggestions about what needs to be done in order to keep the peace.

Make it legal

If you feel confident about giving a relative a mortgage loan, make sure you have a solid legal agreement in place. An attorney can help with that. Another option is to set up an agreement through peer-to-peer lending organization National Family Mortgage, which says it has helped with more than $30 million in loans between relatives.

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