Cash Back From Seller
My broker told me to do this on my next purchase contract as an addemdum. He told me to make my purchase price higher then ask for 10% back to use for my down payment. Is this legal? Here's an example...
Asking: 110k
FMV: 100k
Offer: 111k w/seperate addemdum to get 10% back = 100k for property + 11k for down payment
He also suggested asking for 3% in the actual contract to use towards closing costs. This way I'm not using any of my own money. I'm not doing this because I don't have the money but because I only want to put 10% down and still not have to pay PMI or hold an escrow account. Any thoughts on this? Thanks!
In my experience, Some depends on the lender you will be using, some allow up to 6%, some only 2%. If you are buying it higher than it's true appraisal value, just to get money toward closing and dip it back below the appraisal value, then I believe that is illegal.
THe park that is illegal is that you'll fill out a form for any loan,. and one of the questions will be, "Is any of the money for the down payment borrowed" if you answer yes, your LTV will increase and you might no longer qualify, if you answer no, then you are lying and if you get caught, you'll get slapped on the wrist.
Its not uncommon for people to do the addendum thing, and then they don't pass it on to the appaiser or bank.
The 3% towards closing is fine, I always include that, lowers the amount you have to come to the table with.
Hey,
Basically, as long as you tell the lender the full story it is not illegal.
If it was a RE Broker who made that suggestion, I'd avoid him/her like the plague...because there sits (LIES) a crook.
It's not only dishonest and criminal fraud but a total violation of that RE licensee's professional duties to state and to his/her clients to encourage fraud...and that's what it normally turns into, as almost never does the applicant really tell the lender, on his/her HUD 1 form, that the down pmt isn't really the B's own money.
And if any RE licensee could be proved to have done that, the state in question would revoke the licensee's license.
[addsig]