You are probably asking yourself how this could possibly work and why you have not heard about this before.  You may have heard the term “Friends and Family Loans.”  That’s all it is, lending money to a friend or family member just like a bank would.

For example, let’s say that you have $200,000 in your local bank currently earning a whopping 2%.  Your son and his wife are trying to purchase a home for $175,000 but they only have $25,000 for the down payment.  They are currently trying to get a home loan to make the purchase, but with the credit crunch and the fact that they have little or no credit, that may be difficult to do.

You may have never thought of it, but you could become the bank for your kids and loan them $150,000 of the $200,000 you currently have in the bank.  The loan your kids are looking for might cost them 6.5%, but you may be willing to loan them the money for only 5% or 6%, thereby saving them money and earning you more than the bank was paying.  You can create a note and mortgage to secure the loan and protect your investment from any future creditors. By using a third party administrator to service the loan, your records will be accurate and the interest your kids will be paying can be tax deductible.

Sunwest Trust, Inc. can help you through the process and can administrate the loan once everything is in place.  Sunwest can collect monthly for taxes and insurance to spread those payment amounts over the entire year.  Your kids will make their monthly payments directly to Sunwest Trust; Sunwest will allocate the payment to principal and interest and can deposit the money directly into your checking, savings, or money market account. By making the loan for your kids, they can now build good credit for themselves and provide you with a monthly income at a rate higher than the bank.  In a few years when things get back to normal, your kids can refinance their home and pay you off or get a second mortgage for repairs or improvements.

As always, any investment has the risk of loss, and this is no different; so this may not be for everyone, but for those who consider the risk since it may be helpful to both you and your kids.  You are encouraged to consult your attorney or accountant before making such a loan.

For more information regarding this type of Friends and Family loan call Sunwest Trust, Inc. at 1-800-642-7167 or you could visit, www.SunwestTrust.com.

More Resources To Review If You Are Considering Making A Loan To A Family Member:
Great Advice Concerning Personal Loans From Credit.com...

What you need to know before you cut a check for a family loan? Please review Fool.com to read the entire story.