Lending money to a friend (Advice: How should I do this?)

[JSD]

I've agreed (in principle) to lend a trustworthy friend $5000 so he can avoid PMI on his Mortgage... we agreed to put everything in writing. Does anyone know a good site where I can print a contract? Any suggestions on what to put in the writing that I might not have thought of? I'm lending him $5000 to do this and $5500 will be coming back to me in a 12 month span (12 payments). I'm a bit hesitant to tie up that much money for a year and only getting a $500 return... But I do want to help a friend.

I know there's a lot of Lawyers and Business people here on CB, so I thought I'd ask what other people would do and gather advice.

P.S. - I understand people are against doing business with friends... I'm not asking for life lesson advice, I'm asking for advice on how to make up this contract fairly.

[dark_lord]

my advice.....dont lend the money.

[bdm860]

What happens if he fails to pay or misses a payment or is late on a payment? And what constitutes late, a day, a week, 2 weeks? You should probably agree on that stuff beforehand and add that into the contract.

[hardlyyardley]

You may get all the protection legally that you can get (recorded second mtge, etc).....but what does your heart tell you when he stiffs you?

[LB3533]

Shouldn't you be saving all your money for your fiancee/wife?

HAHA!!

[EJPLAYA]

I know that you don't want to hear people telling you not to do it in the first place, however that sadly is the answer. Ask yourself how important it is to keep this friend. You won't lose him as a friend over not loaning him the 5k. You WILL lose him if/when you have to take him to court to recoup it. If you can't decide that you can afford to never get it back and you consider it a gift, don't do it. You're definitely a good friend though to be willing to do it. I do admire that.

[Chris]

You can't make up the contract "fairly".  You are not a bank.  It comes down to a simple premise.  Either he pays you back like he is supposed to, and everything works out great, or life happens, you don't get the money in a timely manner, and your friendship suffers or dies.  

If you are asking how to word the contract, get a lawyer in a professional setting.  This is not something to get "advice" about on a messageboard.  If you want to do it right, then do it right.  

[Roy Hobbs]

I'm not as harsh as all of the other folks; if this is a really good friend, I see no problem loaning the money, if you have it.  However, based upon the last friend who you were renting to, I share some of the concern.

On the promissory note, just make sure you have clear terms and conditions, and define the payment schedule, what constitutes default, etc.  Also, if you're smart, you'll have him provide something in terms of collateral, so that if he stiffs you, you're not stuck trying to collect a money judgment against a deadbeat.

[Gemini]

try http://www.legalzoom.com/

[2short]

the pmi isn't going to kill him
if he can't afford to pay that....i'd be a bit hesitant

[PLamb]

For $5000 take the extra effort and make the loan against the house as a mortgage.

If he ever has to go into bankruptcy, the mortgages on the house still have to be paid first, before all other liens and bills

This guarantees you payment

[housecall]

Out of curiosity,how long have you known this person and how long have you been friends?Im not giving advice here but there are different types of friends,lifelong friends,2.friends you've met as an adult3.friends through acquaintances,etc..personally i would need to be friends with someone for years almost lifelong to lend that type of money.

[JSD]

the pmi isn't going to kill him
if he can't afford to pay that....i'd be a bit hesitant

Actually, that's not the issue. According to him, in Maine, In order to qualify for PMI one needs a 720 credit score. He sits at 702 after being negged by credit checks from multiple mortgage people. His plan now is to avoid PMI altogether.

BTW, This would be his second home for vacation and weekend getaways.

[JSD]

Out of curiosity,how long have you known this person and how long have you been friends?Im not giving advice here but there are different types of friends,lifelong friends,2.friends you've met as an adult3.friends through acquaintances,etc..personally i would need to be friends with someone for years almost lifelong to lend that type of money.

In 1988, at age 5, I moved from Sumerville to Wilmington. He was my neighbor and first friend I made after the move.

[Chris]

BTW, This would be his second home for vacation and weekend getaways.

Why not just give him the money, and claim 5 weekends a year at the vacation home?