The Baltimore Sun reports:

” Your loan could prevent a loved one’s foreclosure, bankruptcy or other dire fate. You’d be a hero.

Then again, the borrower might never repay. You fume, the borrower resents your hints to repay and the relationship blows up…

Loans to friends and relatives are dicey. You can play it safe by saying ‘No’ to all loans or offering the money as a gift without expecting to be repaid. But if you do decide to play banker, set some ground rules for yourself and the borrower.”

Peer-to-peer lending (borrowing directly form individuals) is certainly risky and is an easy way to ruin relationships. However, mortgage servicing companies such as Virgin Money can help keep these transactions professional and ensure that the borrower is held accountable.

See Also:

Peer-to-Peer Lending Basics

List of Peer-to-Peer Lenders

Some of the creative financing methods I’ve discussed in previous posts (FHA loans, seller financing, etc.) are more widespread and available to pretty much anyone. However, this post is targeted more towards homeowners with unique family situations. To be more specific (and blunt), if you have a rich aunt or some well-to-do parents who want to help you buy a home, peer-to-peer lending may be a good choice for you.

In a nutshell: peer-to-peer lending occurs when a borrower takes out a mortgage (or a part of a mortgage) directly from an individual. Usually, these loans happen between family members.

A number of loan servicing companies, such as Virgin Money, offer services that facilitate and formalize peer-to-peer loans. Even if your loaded aunt Melba wants to help, she may not feel comfortable just handing over a check. By going through a loan servicing company, she can feel secure with the workings of a traditional loan – a promissory note, repayment schedules, escrow accounts, etc.

Formalizing your peer-to-peer loan can be extremely helpful in making sure that everything goes smoothly. But, problems do still arise. The biggest issue in peer-to-peer lending is family fallouts. Too often misunderstandings occur, causing bad feelings and even estrangement. Even if the lending agreement is in black and white, family members often have disagreements about the loan and how it affects their lives. Does Aunt Melba have a say in what color the kitchen is painted because she’s helping out? Are you now obligated to sit through lengthy dinners each week because you accepted that help? It’s often worth considering potential issues before mixing family and money.

See: Peer-to-Peer Lending Basics