Request for advice--first time homebuyer in a peculiar quandary thanks, ironically, to his father's beneficence

Hello All,

I am not accustomed to posting online, so please forgive any faux pax I may commit.

I would request your advice with regards to the financing of my purchase of my first home.

The numbers are as follows:

1. Home value: ~$490,000
2. Down payment from myself: ~$120,000
3. Funds from father: ~$250,000
4. Bank loan: ~$120,000 (15 year fixed rate, 3.3%)

When I informed the bank that I will be taking out a personal loan from my father, I was advised (indirectly, but undoubtedly) to present it as a "gift." Upon reading the verbiage included in the gift letter, which states in no unclear terms that there is no expectation for the monies to be repaid, I could not help but conclude that to present the sum as a "gift" is fraud, simply put. To this, the agent said something to the effect that, "Well, there is no expectation but if you choose to pay it back you can." Such reasoning failed to assuage my conscience (and fear of the law, to be fair).

Now, if I am to present the ~250,000 as a second mortgage, as I understand it, that would not only increase the interest rate of the first (bank) mortgage, but also come with a sizable fee (something like 1.125% of the loan amount, which equals $1500). Moreover, since I am no legal expert, I have been considering using National Family Mortgage, which charges $1,075 to facilitate the private financing, as well as $15/month to service the loan by setting up electronic payments and such. The set-up fee is no small sum, but I want to avoid the ~250,000 personal loan being misconstrued as a mere gift, and thus hope to ensure clear documentation and paper trailing. (I certainly do intend to pay my father back, at a 2.4% interest rate (above the August APR of 2.31%) and over the next 20 years.)

Having said all of that, structuring the "father funds" as a second mortgage will come with significant upfront costs and ramifications--1) upping the interest rate; 2) the cost of adding a second mortgage; 3) using National Family Mortgage (or hiring a lawyer to do what NFM essentially does).

Any advice on alternative financing? Should I say thanks, but no thanks, to the dad cash and just take out a 30 year fixed rate mortgage that I can reasonably afford? Is the dad cash making me think I can afford more house than I actually can?

Please do not castigate me for my ignorance; I am already well aware of such. Your advice would be of tremendous assistance. Within reason, please apprise me of any other information I might provide you with to speak better into this situation.

Thank you!

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source https://www.reddit.com/r/RealEstate/comments/cj5yi4/request_for_advicefirst_time_homebuyer_in_a/