WWYD..borrow money from family?

[niccig]

DH and have cut back and are making progress on paying off our HELOC. Hopefully, fingers crossed, we'll have it gone before mortgage rates go up and we can refi. We might still need to have PMI if our house value doesn't go up..but by my calculations it should still be less than current payment, and it will lock in a lower rate.

DH today mentioned borrowing $$ from either my family or his family to pay off the HELOC and then pay them back with same interest we're currently paying.

I say No.
1. you don't mix family and money and family will judge what you spend money on even if current with the loan repayments
2. We should have paid this loan off a few years back but spent our money on other things. This is natural consequence of those decisions and getting bailed out by Bank of Mum/Dad doesn't teach the lesson that needs to be learned ie. we need better priorities when it comes to money.

I told DH that we should keep going as we are and see where we are into next year.

Now, I'm 2nd guessing myself...a lower payment sooner would be nice and if rates go up before we can refi, we'll be kicking ourselves.

[crl]

I would not borrow money from family unless it was necessary to provide food, shelter or clothing to my children. I would not want the potential mess of them needing the money for some emergency, or of them feeling like they should have some say in our finances, etc.

Catherine

[egoldber]

Well, we did this earlier in our lives, but it was a relatively small amount. DH's parents paid off his student loan balance (about $5K) and also paid off a car we had bought (about $10K balance) so that at the time I could go back to graduate school for a PhD without having any outstanding debt. We paid them back with interest over about 5 years. It worked out fine.

But OTOH, the ILs were not exactly happy when I dropped out of that grad school program in order for us to move to a different state. I also wasn't happy with the program and felt a bit lied to by the professor I was working under. All in all, there have been no consequences, but it is definitely true that it leaves you open to more scrutiny for money decisions.

[roobee]

Have you heard of the HARP program? That may solve the house appraising for enough problem. Plus, no PMI - unless you currently pay PMI. And you should still be able to refinance if you your HELOC will continue to have their loan in a subordinate position (I think).

How much do you owe on the HELOC? Can you pay it off more creatively than asking mom and dad? Do you have a paid off car you could refinance? Could you get a personal loan?

I don't think asking mom & dad is the worst thing in the world - with savings interest rates so low they may be making money by giving you a loan.

[s7714]

Well, we've been on both sides of the issue. We borrowed money from my parents to use as part of our down payment. We've also loaned money to relatives.

The biggest issue for me in borrowing money from my parents was just in the asking. Made me feel a little juvenile to be asking my parents for help! In our case we just paid it back in one lump sum because we got our holding deposit back from the builder after a certain time period. We discussed paying them back with interest, but they said it wasn't necessary. If we were going to pay them back in installments then we would have figured out some sort of interest rate for sure.

On the flip side we've loaned money to family to buy cars and pay for things. We've never asked for interest and haven't ever questioned the person's buying habits post loan as long as they're paying us back as agreed upon.

I do think you need to understand the consequences of your previous spending habits, but I don't think you need to penalize yourself by paying out more money if you have a way of improving your situation.

[mommylamb]

Ok, I'll come clean. We did this recently. We refinanced our house and in order to bring it back up to 20% equity, we borrowed money from my parents and we're currently paying them back. They know we're good for it and they don't need the money immediately. If they did, we have savings we could cash in to pay them back. I have no doubt that we'll pay them on time at the schedule we agreed to with them.

[TwinFoxes]

I think it really depends on the family, and in the majority of cases it not being a good idea. If you think you'll be scrutinized etc, do NOT do it.

[♥ms.pacman♥]

I would not borrow money from family unless it was necessary to provide food, shelter or clothing to my children. I would not want the potential mess of them needing the money for some emergency, or of them feeling like they should have some say in our finances, etc.

Catherine

:yeahthat: i totally agree with this, and also your post Nicci...personally i believe that for the most part, family and lending money do not mix..it just isn't worth it IMO. i would only consider it in emergency situations.

[arivecchi]

I would not borrow money from family unless it was necessary to provide food, shelter or clothing to my children. I would not want the potential mess of them needing the money for some emergency, or of them feeling like they should have some say in our finances, etc. I agree with this. I would not do it unless it were an absolute emergency. It's just not in my personal comfort zone.

[niccig]

Thanks all.
I think borrowing the money is out of my comfort zone because of our past money decisions. If we had made more sensible decision, and were still in this situation, I'll be more likely to consider it. DH is a spender and I've pretty much let things go. I'm now willing to tackle this with him and he has gotten on board the last few months.

There's no way I'd borrow from my parents, and DH's parents might do it, but I think they would be some judgement - not to our faces but behind our backs. I know they've helped out DH's sisters in the past. They're retired and I think they shouldn't have to help us out unless it was an emergency.

I do think we can pay it off and if interest rates stay low for next 18 months, which is predicted, we can refi. I'm not sure our 2nd mortgage co. will agree to subordination for us to refi the first now - I should check again on this. We can't roll them together I've been told. We're not eligible for HARP as it's not a FHA backed loan.

Like many people, we're trapped with less than 20% equity because our house value has fallen so much, so we can't take advantage of the low rates. If we could refi, we would be able to make some house renovations we've wanted to do..but those will have to wait.

[roobee]

You may want to double check on the FHA thing - because I know that we have a traditional mortgage (not FHA) but when I used a look-up tool I found that Freddie Mac backs our loan

For Fannie Mae:
1-800-7FANNIE (8am to 8pm EST)
www.fanniemae.com/loanlookup

For Freddie Mac:
1-800-FREDDIE (8am to 8pm EST)
www.freddiemac.com/mymortgage

http://www.harpprogram.org/faq.php

[larig]

I would totally borrow money from my parents. I'm an only child and don't have sibling, which I think can complicate things for some families. On the other hand, I'd lend my parents money in a heartbeat too.

[crayonblue]

I would not borrow money from family unless it was necessary to provide food, shelter or clothing to my children. I would not want the potential mess of them needing the money for some emergency, or of them feeling like they should have some say in our finances, etc.

Catherine

Absolutely this. DH borrowed money from his parents to buy my engagement ring and I made sure we paid them back asap. I was stressed out until we had paid them back and they are the sort that wouldn't have held it against us in the slightest if 13 years later we still owed them! We haven't borrowed money from anyone since and I want to keep it that way.

[Indianamom2]

I would not borrow money from family unless it was necessary to provide food, shelter or clothing to my children. I would not want the potential mess of them needing the money for some emergency, or of them feeling like they should have some say in our finances, etc.

Catherine

:yeahthat:

[Uno-Mom]

BTDT on a lower scale. I would not suggest that anybody else do it! And I think you're wise to especially hesitate because of past money decisions. We are exactly the same.

(1) we got ourselves in a desperate hole about 8 years ago and my parents rescued us with a 5k loan. I cannot imagine a better set of parents to borrow money from, but it did change our relationship until we paid it back. There was a measure of awkwardness.

Fast-forward to 5 years ago ... DH and I still weren't perfect with money (ha!) but were making much wiser decisions. We sold our house to purchase a larger one and start our family. We found a great home that was a few K too big for our budget. We'd been sharing our house-hunt stories with my parents all along.

So, (2)nd situation: they came over to take a look at the home we were about to frugally say "no" to... and decided to gift us 5k outright to bring it down into our affordable range! This time it was an unblemished blessing and we accepted gratefully! It was very different, accepting a gift vs becoming a debtor to them. I know they felt differently about it, too. I think the reason why they gave us that gift was because they'd seen us change our ways somewhat. (To my everlasting gratitude, they NEVER preached at us about it! :) )

I know neither of our experiences are exactly like yours', but this is what convinced me never to borrow from family again. Not so much that my parents ended up being so generous... just that the two situations back-to-back made me realize the awkwardness of borrowing.

[hellokitty]

I wouldn't unless you are desperate. Of course, having said that, we are hypocrites. My DH HAS borrowed $ from his mom to pay off our home equity loan, that yrs ago when they used to let you take out a home equity loan as a downpayment, instead of taking out PMI. I did NOT want him to do it, but he did it anyway. I knew there would be a huge rope attached to it, and there was, my mil basically feels that she can ask us for as much $ as she wants now and we need to give it to her. My mil is the type of person who LOVES it when ppl, "owe" her, if she does one favor for you, you owe her for the rest of your frickin' life, it sucks. To say the least, I was not happy about it and my DH knows it. I know my parents would have lent us $ if we needed it, but then my mother would feel that it was open season to openly poke her nose into all of our financial affairs and spending habits and openly criticize and advise us what to do, so I would never do it, unless we were in a desperate situation. I know that it would drive me crazy.

[justlearning]

Like many people, we're trapped with less than 20% equity because our house value has fallen so much, so we can't take advantage of the low rates. If we could refi, we would be able to make some house renovations we've wanted to do..but those will have to wait.

I wouldn't ask my parents or DH's parents for money unless we were going to become homeless and/or hungry. (I'm grateful that we've never had to borrow money from them and likely never will.)

I'd especially not ask them for a loan that indirectly helped to pay for house renovations. IMO house renovations aren't a good investment--you can rarely get back 100% or close to that when you sell, especially in today's environment. If you're referring to needing to replace a leaky roof because you're getting water in your house, then that's understandable but if the renovations are for more cosmetic reasons, I'd postpone them. Delayed gratification, IMO, is a wonderful thing to experience and model for your kids. Hopefully, your DH will realize that too.

[niccig]

I'd especially not ask them for a loan that indirectly helped to pay for house renovations. IMO house renovations aren't a good investment--you can rarely get back 100% or close to that when you sell, especially in today's environment.

It wouldn't indirectly pay for house renovations. If we did get a loan from them, we would pay them back first before anything else. Then once clear of that, save for house renovations.

My comment about house renovations was that because we can't secure a refi due to housing having lost value, we're not putting money back into the economy as we're putting off needed house renovations.

But I can't do it. There's no immediate need, and they need to have their $$ work for what they need. And I agree with it being a lesson in priorities and waiting to pay for things. I just have to cross fingers that interest rates stay low or our house value comes up a little more. Last November's value would be enough to refi.

[justlearning]

I don't know your situation, but FWIW we just refinanced with Wells Fargo (where we already held our loan) and didn't have to have an appraisal. It wasn't quite as good a rate as I could have gotten elsewhere, but it was no closing costs at all and no appraisal needed. If we had to have our house appraised, I don't think we would have met the 20% equity rule either based on our value declining even further due to some recent low sales around us.

It may be something to look into (if you haven't already) to see if you could qualify for it. I think it helped that we already had our loan with Wells Fargo.

[KrisM]

My brother and my parents are doing this. My brother wanted to refi, but didn't have the equity any more. My parents have 'extra' money that was earning them very little in the bank. They loaned it to my brother who then refi'd to the lower rate. He'll continue to pay his old total payment, just paying the min on the actual mortgage and the rest to my parents until my parents are paid off.

And, FWIW, my parents have it written as a contract and if something should happen to them, the inheritance would reflect the loan to my brother and the balance would be included in his portion of any inheritance. I asked my dad a bunch of questions and felt okay with it all. It's a small amount of my parents total wealth, they are happy with the monthly income, they and I know my brother will not stop paying them, etc.

I'd say that overall it depends on the family.

On the flip side, my parents loaned my uncle money and they were fairly sure it was a bad idea at the time, but felt they needed to help him. My uncle stopped paying and now they don't speak.

[DietCokeLover]

I think it really depends on the family. I would do everything in my power not to do it, and I have a great relationship with my parents.

[niccig]

I don't know your situation, but FWIW we just refinanced with Wells Fargo (where we already held our loan) and didn't have to have an appraisal. It wasn't quite as good a rate as I could have gotten elsewhere, but it was no closing costs at all and no appraisal needed. If we had to have our house appraised, I don't think we would have met the 20% equity rule either based on our value declining even further due to some recent low sales around us.

It may be something to look into (if you haven't already) to see if you could qualify for it. I think it helped that we already had our loan with Wells Fargo.

That's a good idea. W/o and appraisal, I wonder what value they would go on? The tax assessment from the city?

[justlearning]

That's a good idea. W/o and appraisal, I wonder what value they would go on? The tax assessment from the city?

Good question--I just checked and the value that they listed on our documents was lower than our latest tax assessment value but a good deal higher than we believe that an appraisal would have come back at (based on recent sales and info from our neighbor realtor friend).

ETA that my best guess is that they used our latest tax assessment value in a formula to say that it's assessed at x price, we know that the market in that general area has fallen 5% since those were assessed so therefore we're estimating that their home is valued at x. The reason that appraisal values in our particular neighborhood have taken a nosedive lately (and why we were concerned about going through the appraisal process) is that there have been five foreclosures/short sales on homes similar to ours that sold for WAY less than they should have. And unfortunately, appraisers in our area do use distressed properties as comps.

[lalasmama]

I would not borrow money from family unless it was necessary to provide food, shelter or clothing to my children. I would not want the potential mess of them needing the money for some emergency, or of them feeling like they should have some say in our finances, etc.

Catherine

:yeahthat:

My sister has borrowed modest amounts from me (always under $500). Let me tell you the frustration of then seeing her be $x short on a payment, because she paid extra on y, or simply because she found shoes on sale that her kid begged for. Even worse were the times when she had the $ to pay me back in full (like a tax return), yet, had fun with the money instead, since I didn't know that she had other money on it's way. When she asked to borrow money the last time, then-SO basically told her that it's a gift, so that we didn't feel frustrated when we saw her spending in a way we felt foolish.

IMO, mixing family and money, without emergency, just isn't worth the hard feelings it causes. I would borrow, if needed, for food, gas, electricity, and the daycare bill, but that's where it stops for me. But those are things that (usually) my family would "gift" to me, if I was really that low on money. (Thankfully, it hasn't happened yet!)

[HannaAddict]

Don't do it, trust your gut instinct. We have loaned money and it is frustrating to see a friend buy a puppy sired by the Westminster Best in Show golden flown here when they owed us money!! And on and on . . .

And for bank refinancing etc. they do ask where the money came from to pay off the HELOC and in this era of stricter looks at everything, they don't just take your word for it. We know plenty of people who were wiling to lie and sign a declaration that it was a gift, not a loan, but I don't commit bank fraud and would not want to be in that position. It is a different world than the refinancing climate of years past and rightly so. Since your husband was a spender, use this tight spot and situation to drive home the point to live within his means and with the economy how it is, I bet rates are still low when you get that HELOC paid off! Good luck.

[wendibird22]

I've borrowed from my parents on 2 occasions. The first was to add to the downpayment on my first car (I was 23yo and paid it back w/in 3mos) and the 2nd was to assist with closing costs on our first home. We paid it back w/ interest by a monthly agreed upon amount and we never missed a payment. We treated it just like any other load and when we had extra, we paid extra to that payment. But I agree that you really have to base it on your family dynamics, your comfort level, etc. It can be a slippery slope.