First deal - mortgage question

Financing, Hard Money Lenders, Private Money
1

Hello all,

I have been bird dogging for a while now, but have never done my own deal. I decided to take the plunge and put a home under contract for $164K - appraised value is at $235K.

I am advertising the home as a lease w/ option; sales price of $190K. I have had someone contact me about buying for more than the asking price and asked if I would give the difference as cash back at signing.

I know absolutely nothing about mortgages. Is this a common practice? Do I need to come out of pocket for the cash or how would this happen?

Thanks for any info. I’m really trying to get my first deal under my belt.

Tim

2

The propect is basically asking you to alter the purchase contract by increasing the sales price. This allows the buyer to get a larger loan on the property. The loan proceeds go to you at closing to satisfy the higher purchase price and you then refund the excess over the actual purchase price to the buyer likely outside of closing. This is mortgage fraud in my opinion.

3

Thanks 71tr,

If the excess would be given back to the buyer outside of closing and off the agreement, what kind of reassurance do they have that I would follow through? How is this typically written up?

I definintely do not want to get off on the wrong foot by doing shady business practices. Is this generally considered fraud by most investors?

Thanks

Never mind… I found the search function and found a wealth of info on the site. Thanks. :beer

4

Generally this is known as a sellers concession, but it only works for paying for his closing costs and pre-paid expenses. First, the lender has to allow sellers concessions, some allow 3% max, some 6% max. This has to be done as part of the negotiations/contract initally, otherwise it normally violates RESPA rules. Normally there is a max of 6% sellers concession allowed. This is the legal way of doing this, and if there is any excess, you can not leave the closing table with a check. That is just part of the deal.

For example: Buyer makes you offer of: 190,000 and requests a 6% sellers concession.
You agree to do up to a 6% sellers concession (pay for his closing costs & pre-paids, but he cant walk away with cash from closing table-legally).
You then are offering to pay for 11,400 of closing costs/prepaids (and this is negotiated as part of the price/offer/contract from the bat).
If his closing costs are any less, oh well. The price is the price. No extra cash should come from mortgage proceeds to you, that is the fraudulant part.

If there were other items that needed repairs, or if the (you) seller was giving a carpet, or appliance credit that can also be included – but this needs to be negotiated at the origianl contract NOT added on after the appraisal comes in (this is why its Fraud – changing the price after a sales price has been negotiated)

The seller is NOT under any circumstance allowed to give the buyer back cash at the closing. In fact, the buyer is NEVER supposed to leave the table with ANY cash – any $$ over the amount of credit is supposed to be used to immediately pay down the loan.

How this could be done correctly –

When negotiating the sales price a 6% concession for closing costs can and should be asked for on every purchase – PLUS if there are any repairs, or upgrades that need to be credited for the MUST be negotiated at the time of contract – once a sales price is negotiated, its not supposed to be changed bc the appraisal is higher. IT often is, but, if a professional is reported doing this, they not only loose their license, but are also fined, and probably go to jail. IF a Realtor is involved, they can also loose their license, fine and jail as well.

Hope that helps.

5

It does help. Thanks CMP.

Tim