With the low inventory that is the standard of the market right now, some Buyers are getting competitive and creative. They are borrowing money from friends and family so that they can put a cash offer on a property. Then, once escrow closes, they finance the house and payback the money that was borrowed.
For those considering this, I have a couple of recommendations. First, get pre-approved from the bank you will be using before you even decide on this option. In fact, it might help to have a pre-approval letter in hand when you approach those from whom you would like to borrow. Caution--when escrow closes and you want to purchase new furniture, appliances, etc for the new house, wait until after the financing is done. Large purchases showing up on credit cards or money coming from your accounts could possibly change your ratios and change your loan.
Second, you should also consider using promissory notes. The devil is always in the the details. With a promissory note everyone knows what the expectations are. Most financial experts do not recommend borrowing from friends and family because of the risk of damaging the relationship. So keep things legally binding if you go that route.
