Hello, I’m pretty new to REI and i’ve been looking for creative financing to save as much cash as i can. Last week i was referred to a Mortgage Company by a Hard Money Lender. And it turned out they’re offering 100% financing and possibly a little extra money for rehabs.
It took the mortgage officer a while to try and explain this whole process. Here is how it structures/works:
Actual Purchasing Price: $30,000 (Seller gets paid this amount)
Inflated Purchasing Price $36,000 (This is the amount the lender will lend)
The trick is that I will sell the seller a package of “Home Discount Products”
and I will get 16% commission which is $5760. I will then use this amount to pay 10% down payment ($3600). The rest of the left over money I will pay toward closing costs ($2160). In this case, If i use 20% commission, I can take some of the left over money for rehabs.
A few rules:
Commission % cannot exceed 20%.
Appraisal Value of the house must be equal or higher than the “Inflated Purchasing Price”.
Further clarification, this Home Discount Products is a company set up by the founder of this Mortgage company as a dummy company that works solely for this creative financing purpose. Another thing is that at the end of the year i will get a tax form from this company where i would pay 15% of the total commissions i made :(.
This is what is written on the front page of their web-site.
“Property values are through the roof nationwide”
That statement alone tells me that these people have no idea what they are talking about. Bosshaug is correct. All this is is a thinly disguised down payment assistance program. I would recommend avoiding it at all costs. If all you need is 3K to purchase this home I would suggest using a cash advance from a credit card or borrowing from a family member. Getting involved in a scam like this will only hurt you in the end. hope this helps.
So when they try to sell this loan to a federally insured financial institution without disclosing the details of the inflated appraisal, purchase contract and down payment it becomes mortgage fraud which is a federal crime.
If you’re going to get your money from a hard money lender, why not just go to one yourself? They have a list on the left side the this site. You can get money for buy/rehab. If you find the right deal, you can get this for no money down. The trick is to quickly sell or refi out of the HML ASAP. I think a HML has its place, but developing relationships with your local small banks will benefit you. You’ll have to prove yourself to these banks over time. I’m in the process of that now. Basically, if you can reliably make them money, they in turn give you what you want. That’s how they explained it to me.