Somewhat of an easy basic question here so please bare with me. Can someone please explain the cash back at closing concept? My understanding of it is this. Lets say the appraised value of a home is $275K but I am only paying $200K. Can I get the loan amount for the $275K and walk away with $75K at closing? Is my understanding correct? Is there other ways to get cask back?
No, that’s not usually how it works, as most lenders will only finance the less of either the purchase price or the appraisal.
There are a number of ways to do cashback closings.
One is to find a lender that will loan based only on the tax value or appraised value regardless of purchase price. Most lenders, however, will NOT loan 100% of value. 80% is the norm, especially for investments, though some will go higher, depending on credit.
Another is to have seller concessions included in the offer. Examples: Purchase price is $200K, 90% LTV loan ($180k), Seller pays 5% ($10K) in closing costs and a 10% repair allowance ($20) = $10K cash in pocket (simplifed, but you get the idea)
Still another is to pay the property, then do a no seasoning cashout refinance (hopefully with a no closing costs lender). Example: Value is $275K, bought for $200K, cashout refinance at 80% = $220K, $20K cash in pocket.
Hope it helps,
Here is my situation. I have an opportunity to get into pre-construction SFH. They want $3000 to secure the lots, and then I get the option of cash back at the close, or keeping the cash in and having a cash flow property. So is that still the same kind of cash back you are referring too or is my situation different?
May I ask you to put this explanation in more simpler terms?
“Another is to have seller concessions included in the offer. Examples: Purchase price is $200K, 90% LTV loan ($180k), Seller pays 5% ($10K) in closing costs and a 10% repair allowance ($20) = $10K cash in pocket (simplifed, but you get the idea)”