Does anyone know if it is now illegal or if it is considered fraud to get cash back at closing? If not, how do you get cash back at closing? Also, I have found lots of hard money lenders but no private money lenders. Where do you find these?
Charlotte
Charlotte,
As far as cash back at closing, are you talking about cash in your hand or cash above the purchase price for rehab? If you’re looking to walk away from the closing with cash in your hand, it’s not illegal just unethical for the lender to allow it. If you need cash for a rehab project that’s another story but every rehab lender deals with it differently, usually using a fund control. You finish some repairs and then you’ll be reimbursed for the costs. Other than a rehab project there is no reason for anyone to get cash back at closing, that’s one of the reasons the mortgage market is in trouble.
As far as your question on private lenders, Hard Money lenders will often use private money, from private individual lenders (investors). It’s very difficult to find private lenders due to laws and regulations on lending money, even when it’s your own money. For a private lender to get returns on his money that equal what a they will get through a hard money lender they would be considered a loan shark. Therefore, to protect you from illegal rates, terms and costs the hard money mortgage lenders are what you should use, unless the private lender is a rich uncle, if not, be extremely careful.
It is fraud if the sales price is inflated to include the cashback and the lender is not made aware of it. The seller is allowed to contribute towards the closing costs of the transaction as well as towards repairs. But it has to be noted on the contract.The seller cannot however give the buyer cash back outside the transaction. Hope this helps.
It’s hard to properly advise you if we don’t know your situation exactly. You can take cash out on a refi for example. But the responsible use of leverage means that you don’t go over like 80% of LTV. Problems arise when the lender allows up to 100% or even more of LTV. Then if the borrower runs into financial trouble and needs to sell the house in a down market, troubles arise. While inquiring about home equity loans/ refi’s with Capital One, the person said they offer a 125% LTV loan. Basically they used two different lenders. I found myself tempted, but common sense took over. But this kind of irresponsible lending/borrowing ( it has many forms) is basically the reason for the housing “crisis”.