Parents, other relatives, or even friends who lend you money for a house can benefit too.

Bob Hope once said, "A bank is a place that will lend you money if you can prove that you don't need it." Maybe that explains why more and more homebuyers are turning to their loved ones, and even more distant members of their circle, for help with financing. If done right, tapping the "Bank of Family and Friends" can be financially lucrative for both you and the person lending you the money. You get the cash you need, they earn interest at a rate equal to or even higher than they could have gotten elsewhere -- everyone wins.

Commonly called a private home loan, a private mortgage, or an intrafamily mortgage, such a loan is not much different than one you'd get from a bank, credit union, or other institutional lender. As with an institutional loan, you'll normally sign a contract and establish a schedule of monthly repayments with interest. Your private lender will hold a lien on your property and have the legal right to demand full payment on the outstanding balance if you fall behind in making payments. (Note, however, that unlike in the past, you'll probably need to find a private lender to fund you the entire amount of the loan -- trying to combine a family-and-friend loan with a traditional bank loan can lead to the bank refusing to go forward, if you appear to be taking on more debt than you can handle.)

Your private lender can even foreclose if you default on the loan. Few would go so far, but it's important to give them this right, so that if you get into financial trouble and another lender forecloses on you, your private lender won't be left out in the cold.

Rest assured, you have legal rights as well. Your parents couldn't foreclose on your house just because you arrive late for their 50th wedding anniversary, and your best friend couldn't demand an early payoff in order to buy a new car.