Bob Hope once said, "A bank is a place that will lend you money if you can prove that you don't need it." That might explain why many prospective homebuyers are turning to loved ones, and even more distant members of their circle, for help with financing the house purchase. If done right, tapping the "Bank of Family and Friends" can be financially lucrative for both the homebuyer and the person lending the money. As described below, you would get the cash you need, your family lender would earn interest at a rate equal to or even higher than they could have gotten elsewhere, and everyone wins.

A private home loan, also known as a private mortgage or an intrafamily mortgage, is not much different than one you'd get from a bank, credit union, or other institutional lender. Like with an institutional loan, you would 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 what was possible in the past, you might need to find a private lender to fund you the entire amount of the home 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.

A private lender can even foreclose if the borrower defaults on the loan. Few would go so far when dealing with a loved one, but there's an important reason to give them this right: so that if you get into financial trouble and another lender forecloses on the property, your private lender won't be left in the cold.

Rest assured, the borrower has legal rights as well (assuming you signed a contract for the arrangement). For instance, your parents couldn't foreclose on your house just because you arrived late for their 50th wedding anniversary, and your best friend couldn't demand an early payoff in order to buy a new car.

Let's take a closer look at how both the borrower and the lender can come out of this arrangement feeling like they've gained.

By turning to parents, your favorite aunt or uncle, your in-laws, a brother or sister, or even your best friend or business colleague, you might gain the following:

Whether it's a relative or a friend, your private lender stands to gain in a number of ways, such as:

Achieving a comparably favorable rate of return. Even without paying as much interest as you would pay to a bank, you can probably offer higher interest than the person could get on current investments available to average folks without major risk. (Sure, they might earn more in the stock market, but they might also lose big.)

Generating a steady income stream. Private mortgages are ordinarily repaid over time as opposed to in one lump sum (unless, of course, you sell your house, at which point you'd have to pay off the private mortgage in full). By setting up and following a repayment schedule, your payments can become a steady income stream for your family-or-friend lender.

Once your private lender has agreed to loan you money to finance your real estate purchase, you'll want to handle the transaction almost as a bank would. This includes drafting and signing a written promissory note and supporting mortgage documents. It's a good idea, although not required, to draft a written repayment schedule, as well.

It's wise to get professional or legal help with this, particular if the loan won't be between immediate family members. Some family loans might fall under the federal Dodd-Frank Act, which is implemented by the Consumer Financial Protection Bureau and governs mortgage lenders.

With any luck, your income will remain stable, and you'll be organized about making the scheduled payments until either the loan is paid off or you can refinance with a traditional lender. However, unforeseen circumstances might arise, causing you to run short on cash.

Whatever the problem, if it's a legitimate cause for you to be late with your payment, discuss it with your family-or-friend lender. Get in touch as soon as possible, and definitely before the payment comes due. Your lender will likely appreciate your honesty and might help by lowering your payments, temporarily freezing them, or forgiving some payments altogether.

That's the beauty of an intrafamily mortgage. Repayment is much more flexible than with a bank. Just make sure that you don't abuse your lender's trust. Save special requests for the true emergencies.

For a comprehensive guide to help you get the right house at the right price, get Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, J.D., and Attorney Ann O'Connell (Nolo). A lawyer can also help with the paperwork, or you might seek help from a company that specializes in these arrangements. These FAQs by Tim Burke, CEO of National Family Mortgage, will tell you more.