Even if you can't convince a bank that you're good mortgage material, your family may think differently. If, say, your sister or father has the money, you can borrow the entire amount at a good interest rate, though it will probably take years to pay back. To pay them back from one tax return takes either a very large refund or a very small loan.
A Win-Win Arrangement
You can't borrow if your family isn't willing to lend you the money. If you approach it like any other loan, it can be a win for both of you. You get a rate that's lower than the bank offers. Your sibling or parent gets a steady rate of interest on the money, in many cases better than a CD or similar safe investment brings in. You can negotiate better repayment terms, and family may be more understanding if you have to miss a payment.
The Gift Tax Trap
If your mom has the money, she might be happy to write you a no-interest loan, but that has drawbacks. A large loan that's substantially below what the IRS considers a reasonable interest rate counts as a gift. A $200,000 mortgage with no interest payments would be large enough that your mother might have to pay gift tax. The IRS-acceptable rates are still lower than the market rates, so charging interest shouldn't hurt too much.
Down Payment Borrowing
If you don't want a long-term loan, borrowing some or all of the down payment may seem a better option, and easier to pay back. Your lender, however, probably won't go for it. With a borrowed down payment, you're buying the entire house on debt, which makes you a much riskier investment. Getting down payment money as a gift is usually fine with lenders. However, your family may not be able to afford that as easily as they can a loan.
Making It Official
To prove that your family loan isn't a gift, you need the full array of paperwork, including a promissory note and a lien on the house. A formal, legally binding agreement is safer for both parties: Your brother can foreclose if you default, but he can't call in the loan just because you had an argument. A default or foreclosure is almost certain to lead to angry feelings on both sides, so consider the risks before you sign.
A Durham, NC resident, Fraser has written about law, starting a business, balancing your budget and fighting evictions, among other legal and financial topics.