OK, my girlfriend and I are purchasing a house. We got our signed purchase agreement contingent on the inspection.
The home needs a roof within next 6 months, and there are some other repairs (minor $1200 estimated electrical).
My girlfriend got into contact with the lender and said that it is illegal for the seller to give us a lump sum for negotiated repairs at closing. I’ve read several places that this is pretty much par for the course that you can get a lump sum at the closing, or the seller can prepay for the repairs, or it can be held in a trust for the repairs after the closing.
Am I correct, because after speaking with her lender and her “agent” (we are not using an agent, she has a girl at work that is a realtor and lending advice), they are of the opinion that this is a kickback and illegal.
I live in Michigan, am I missing something? Could I really have not noticed scenarios like this in books I’ve read? Please tell me I’m not ignorant like my girlfriend called me today.
Many lenders are hesitant to lend when the buyer is going to get cash at closing. This is because they want the buyer to have a vested interest in the property, and if someone pays you to buy it then you have minimal investment in the property to motivate you to continue to make mortgage payments when finances may get tough. Most retail lenders will not do this, especially in today’s lending world.
They will allow the seller to give you a “credit” towards repair (which lowers your down payment and closing costs) or pays for the work preclosing.
Several lenders will allow the seller to prepay the work or have an escrow account for the work - but this is not paid to the buyer, but directly to a contractor (I would always advise against this) or to an escrow account (my preferred scenario in this case).
The final thought is to make friends with a lot of lenders - even before you have a property to buy. Find 1-2 mortgage brokers and people at 3-4 local banks. Let them know that you are a rehabber, and want to know what loan programs would be available to you, including what it takes to qualify and their terms. Don’t tell them what loan you need - because they only have the loan programs they have. Find out what they have, and figure out how you can use their loan programs for your projects. You can be pleasantly astounded when they tell you about some of the things they will do.