You see it all the time…how to get cash at closing…
I can’t think of a single way that this can be done. Can anybody explain the general
idea behind this?
No conventional purchase will alow for cash out using bank financing at close on a purchase, unless you’ve been a tennant in a property for over a year and your buying it.
then its treated as a refi.
There are several ways to get cash at closing depending on the situation and lender.
Just a few:
Find a lender that will loan against the tax value or appraised value as opposed to the purchase price. Example: Lender will loan 80% of appraisal. $100K property bought for $70K = $10K cash at closing.
Have discounts for repair costs. $80K 100% financed property with a 10% discount for repairs = $8K cash at closing.
over-finance, either thru a 100+ purchase lender or by getting some seller financing. 80% lender 1st, 30% seller 2nd, equals 10% cash in pocket.
Delayed closing. Have seller deed (or co-deed) you the property with a closing in 30-60 days. As owner, you can do a no-seasoning cashout refinance for the appraised value, not the purchase price.
Buy and refinance with no-seasoning cashout loan.
Get a construction/rehab loan. While technically not a cashout loan, you do get to have draws, enabling you to pull money out when needed.
HELOC at closing. Again, technically not a cashout, but if there is alot of equity, simply set up a line of credit loan against that equity when you buy.
Raj
there in is the crux of the problem. I don’t know of a single lender that will loan more then the purchase price of the home if you aren’t seasoned on title. I’ve been a broker for 6 years and I’ve not seen one yet. that being said that discounts every scenario you’ve presented except buying the home then refinancing w/ a lender that does not have title seasoning requirements…(but that only works after you’ve bought the home.)
I’ve seen these prgrams talk about cash at close for years…they lead you to believe that it’s at the purchase this happens…I guess they never specify so they could be talking about a “refinance” not a purchase…
I new it sounded to good to be true…
Is there anyone out there that can name a lender that will loan more then the contract purcahse price if you don’t hold title? (not hard money lenders)…hence being a purchase.
By the way, 102% ltv and 103% ltv loans don’t count b/c the lender will stipulate that the amount over 100% can only be equal to the amount of the title and lender fees on the transaction. additionally, they will also stipulate that any overage can only be used to cover closing costs, not cash out…(purchase loans only)
I still say, if you don’t hold title your arent getting any cash back from a conventional lender on a purchase at closing. I wish it where possible w/ a conventional loan b/c I do a couple purchase transactions a month and lots of them want cash back…at closing.
Getting cash at closing is an idea started by late night infomercials preying upon the inexperienced businessman. They make 100% financing sound like a typical thing, when in reality it’s not common at all, nor even recommended from my own perspective. First, to get 100% financing you’ll likely have to pay at least 2 points above prime, and even then the property would have to appraise well above the purchase price for a financial institute to take such a gamble.
Secondly, over-leveraging yourself is a great way to wind up as one of those people being foreclosed on. If the rental market goes soft and vacancies rise, causing rents to fall, you may find yourself not having enough income to even pay the monthly payments. This is why loans over 80% LTV are subject to the additional fee of PMI (Mortgage Insurance), which is taken out by the lender to insure that they’ll get their money one way or another.
Occassionally there is a time and a place to take advantage of leveraging to the hilt, but more often than not the small amount of cash you get up front is completely wiped out and then some in the unfavorable terms of the loan.
Well I have gotten cashback on many deals over the years. Generally they are on the rehab deals and I use conventional financing and the ocassional buy and hold deals when I find something with solid equity in it.
Now how do I do it?? I first come up with an agreed upon purchase price. If a realtor is involved, this is also the price the realtor will get paid their commission on. Then I explain I am an investor (though they know going in) and I need cashback to do rehab, carry property or make up for negative cashflow. Say I want $50K back at the close. If they agree and with the $50K added to the purchase price and the house will still appraise out, then I am ok with the bank. We write the contract for $50K more and add an addedumn that states at close, the escorw agent will deposit $50,000 in to my said account from closing proceeds to be issued by my bank…
Now I have $50K to take care of the rehab, carry house or just to go and leverage on other deals…
Actually buying 2 condos from an investor now. He bought one for cash and one is financed . Since he has cash onhand as he is liquidating and leaving county, he is just bring to the table a cashiers check for the cashback of $30K per condo. I am doing a 100% option arm on both condo’s for 2yrs, where I will rent and break even with taxes and HOA fees. Plan to do lease option with tennant to sell in 2 yrs. The 30K is for emergencies and to play with on other deals… But best part, I still have 17% equity position going into these condos, though I will lose about 5% over 2 yrs with these loans if market continues to weaken alittle…
hey that sounds awsome! I wasnt saying it couldnt be done,
I am saying however, that I’ve been a mortgage broker for 6 years and I don’t know of a single lender that will do this on a PURCHASE.
Would you be willing to share what wholesale lender is funding this deal for you? (not what mtg. company you’re using but who are they brokering the loan through?) ie…Wamu, Newcentury, D1, Delta funding, Novastar, Cntrwide, Novelle, longbeach, fremont, wells fargo, saxon, ameritrust, etc…These are all wholesale lenders that fund loans for mtg. brokers like me. there are of course thousands of wholesale lenders out there and I only use about 5 or so on a regular basis…so obvioulsy I don’t know about all the programs out there…in any case I would like to know who would do the loan that you describe…not only for my business purposes but for my own personal knowledge when I go to do a real estate deal.
thanks for the help!
The problem is that you’re dealing with big banks. As a mortgage broker, you should be trying to get in with the small local banks in your area. They generally put the decision makers on the front lines and those decision makers have much more leeway in how they can structure and close their loans that they make. Since they are small, they may like the idea of a mortgage broker forwarding them deals. It may help your business.
Private lenders are also another good source of financing against the value instead of the purchase, and I’m not talking about hard money either. If you develop a few of those, then you’d be able to close more deals that other brokers couldn’t, or wouldn’t, touch. That’d definitely help your business.
Raj
THANKs! RAJ.
Thats an Idea. Only problem that I see there is most of the local banks that I know of, won’t talk w/ anybody who has under a 700 score.
If anybody knows of any Mortgage Lenders that will do this I would love to here about it. By the way, this post has gone of track from my orig. thread…I was asking how the “cash at close” deals work that you see the “gurus” promote w/ their programs? does any body really know…?
thanks!
Sky…
my original post is an example of cash at close. Its something that the buyer and seller make an agreement to do and create a contract for it that the escrow agent will only see. The mortgage broker (generally) does not see this. They do not want to know, because the banks can not no…
I see, so basically, the seller wants 70k, but writes a contract for 90k on a 100k house. he takes the 20k overage and gives it to the buyer and writes a promisory note for the buyer…so basically like a seller held 2nd that the lender does not know about?
yea, I’m aware of doing this. I guess my ? was, will a Conventional lender (not hard money) do this…
Only way a conventional lender will do it is if you find the few that go off appraisal values. I also know you can get conventional rehab loans with a purchase and not sure if you can go with a lender that does that, say you need money for minor rehabbing and get the cashback. Just think they will escrow the funds too… look for banks that loan to end users who need to do minor work and get cashback for it…
I had my bank lend for repairs and put it into escrow. I did the work myself, and used a contractor to be builder of record to do the cash draws (he charged me $600). I got $6,000 for 2 weekends of work.
If the primary lender is not aware of the details of the transaction, it is considered loan fraud.
And it is especially fraud if you are telling the lender that you’re buying for one price when actually it is much lower. People go to jail for that.
Tread carefully!
Raj
its a grey area in lending really. I live in SoFl and with all the condo converisons going on in the state the builders are giving big incentives, of course they do not show on the HUDS…they do it thru 3rd party accounts and companies…and well i am sure plenty of these buyers are also politicans and gov’t officals…
example of what they are doing is a deal i am doing now…
Condo conversion: Selling price 305K…showing on HUD will be $7500 closing cost credit only
To be placed in escrow thru a 3rd party company is $16500 for mortgage payments. This is based on 90%LTV at 6% interest rate generally. I will direct the escrow on how to pay out the mortgage payments directly to the bank…(I will have them just do full payment till all money is gone). Then 10days later, I will get a $6000 check from the realtor and 30days after closing I will get a decorating credit of $20,000 from 3rd party again. Also developer is paying the 1st yrs HOA directly to association, (250x12=3000)
In all thats $53,000 in credits in which $26,000 will be cash in hand. Also I will rent unit for $1600 a month. Using a 1yr option arm plan with a monthly payment of about $1500 a month. This means I will enjoy $1500 a month cashflow since i have enough escrowed to cover the payments. Taxes will be about $5500 a yr so after 1 yr I will have about $13700 in cashflow plus the $26000 in bank and will sell. Even with a slower market now, i can sell this for what i paid and come out ahead since i am doing 100% financing…and not paying any closing cost out of pocket… Hummm $26,000 a yr doing nothing…not to bad right…I take these deals all day long… Oh BTW…these units are listed on MLS for 350-385K now,so thats 20% equity going on…
Screw illegal…creative financing is the key to wealth…
its a grey area in lending really.
Sorry, yrush, but there is no grey in lending. Translation of your comment: Yeah, it’s illegal, but I’m either not ready to admit it or it’s okay because I haven’t got caught yet.
Screw illegal…creative financing is the key to wealth…
Well, there is creative financing and then there is illegal financing. Screw illegal if you want. I’m sure all those “creative” investors in Charlotte are currently very happy with their multi-million dollar 8 X 8 living quarters complete with decorative bars that were doing very similar structured deals.
The real rub there Rush is that there is nothing illegal about the deal stucture, IF, and IF you’d just put it on the HUD. I’ve never known a bank that wouldn’t be happy to have $16K + of quaranteed payments.
BTW, if your Realtor is cutting you a check too, give my regards to them as well, as I’m sure that their license will be pulled soon, too. Major no-no for licensed agents. Sorry, but no “grey” area there either.
Raj
what about 50% LTV loan from the bank in first position, and a 55% seller second, in junior positon?
Raj… well i am sure the check from realtor is a 3rd party as well… This is how condo conversions are done in Florida now with all of them…They have changed them around because of the banks and there are many brokers that can not even handle the condo conversions because of the rules especially when done as investor…
Grey area is like Judification Withheld we can say…
as for mistapaants how a 50%LTV be cashback with the seller holding a 2nd. You still have no money in your pocket.
50% from the bank
55% from the seller
Your senario is seller financing where the seller is financing half and closing cost. Your still not walking away with money in your hand. and you can not just go and refi the property and get cash since the seller has an 2nd position…
Cash back at closing is Highly possiable and I know you can figure it out. I would tell you the easy way to get 30-40-100k back on the other hand it is one of those issues that Every State has different guidelines and I am not going to be responsable for that.