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Me and my wife decided that we were done renting. We talked to the bank, got an FHA loan pre aproved, and started looking for houses.
Our real estate agent showed us a bunch of houses and we found a desirable foreclosure. As we were talking about the foreclosure process I became aware that I'd be competing with cash investors that could buy the house for less than my offer.
So my dad told me that he'd play investor in my behalf, purchase the house that I would buy it from him.
Now, I'd like to be able to repay him the full amount as soon as possible and my research told me that as soon as the house was in his property he could sell it to me, but I'd be paying closing costs on two sales. Wich is definately doable, and still more profitable than going into the foreclosure auction with a higher offer to be ahead of cash investors.
The scenario that I've been trying to see if its possible is the following. I'd get an inter family loan from my dad, go for the foreclosure auction myself, and then refinance my mortgage with a bank and repay him in full. Would this be a dumb way to do it? Are the refinancing rates, down payments etc different from my original FHA loan?
Cash-out refinances do not go up to the full value. You would refinance the home at 85% of the appraised value. Many banks make you own the home for six months first. There would also be closing costs, and your Escrow Impound account setup taken from that 85% loan.
Also, many banks have rules about just how much cash you can do with a paid off house. There would also be Straw Buyer Red Flags amok.
Also, cashout refi rates are generally higher than purchase rates.
PS: cash buyers can also pay more than the home will appraise for. Also, FHA will not lend on properties that are in need of repair.
Lots of moving parts here. What state is the home in? (Like which state in America)
If you have to borrow borrow as little as possible from dad. Then use that as a down and buy the house on your own
You can also go in with you and him buying the house together in both your names. Then you just make the payment to the bank and then make sure you pay him back what he put in every month
This way you're not farkling with him buying then you buying and so ending all that money on closing costs etc bs
If you are talking about auctions, you need all cash to purchase, you are at that point a cash buyer too. The foreclosure auction doesn't mean it will go for cheap, you really need to understand the process if you consider an auction, you aren't just competing with cash buyers, you are bidding against professionals.
The house is either owned by the bank or by a person, if it is owned by a bank, it is an REO and normal sale, if it is a person, it will probably become a short sale where the person gets to pick who to sell it to and the bank has to approve it. Why would a seller or a bank want to take a lower cash offer versus borrower money with cash? If they are buying with cash at a lower amount they are bringing down the property values, and you can get the next one cheaper as long as they don't buy it.
Does your dad not want to own it with you, but keep it totally separate? Buying it from him create a non-arms lengths transaction causing you problems if you aren't initially on deed.
If you are doing FHA for a low down payment your plans of buying from your father wont work.
If the sellers don't want to take more money from an FHA buyer and take a lower than market cash buyer, that is theirs and their agents problem. Not much you can do. Also just because you use cash, doesn't mean you shouldn't get an appraisal.
With many cash buyers in California, we have lenders that are letting people get some of their cash back very quickly after buying all cash. Regional lenders might have their own guidelines. Message me if you want my opinion on FHA for first time buyers and what you are trying to do.
Although cash buyers may be preferred, if the cash offer is significantly less it loses its appeal to the seller. Most investors are trying to get deals on property, so they oftentimes offer much less than prospective homeowners...so the cash vs. financed sale can be less of an issue than one might think. Some foreclosures even give a preference to owner occupant purchasers, so keep an eye out for those.
If you pursue making a cash offer through the help of your father, however, I see little advantage--and plenty of downsides (closing costs, potential transfer taxes, uncertainty of refinancing, etc.)--in having your father first take title to the property. He could give you an unsecured loan, or he could take back a mortgage as security (in which case you would still have concerns about refinancing). In any case, it would be wise to get appropriate legal counsel to make sure everything is handled correctly if you decide pursue that route.
In this case the property turned out to be biddable only by Owner Occupants, Nonprofits, and Government Agencies only, so I'm guessing that, assuming there are no loopholes around this, I don't have to worry about investors.
The house is also available with an insured FHA financing and no repair escrow, and the asked price is based on on an appraisal.
I have seen the comps of the region, and I'll have the house inspected before I actually go through with it.
I guess I'll go with the FHA loan, and with an offer that my realtor and closing lawyer find competitive but not overpriced.
In this case the property turned out to be biddable only by Owner Occupants........ I don't have to worry about investors.
Many investors are smart enough to lie. Why? There is no owner occupant police checking on them. Its almost impossible to prove they were not owner occupants nor is there anyone who will care even if there "is" proof.
Many investors are smart enough to lie. Why? There is no owner occupant police checking on them. Its almost impossible to prove they were not owner occupants nor is there anyone who will care even if there "is" proof.
It's relatively easy to check...and I've known purchasers who were "checked on" by the FBI.
Perhaps you should have started your post: "Some investors are dumb enough to commit perjury".
Perhaps by people who stated owner occupant for 15 properties at the same time.
The person I knew had only purchased one HUD house. To commit perjury 15 times would really be ludicrous.
But, in the scheme of things, who is the federal government going to go after: a bank executive who steals billions of dollars and commits massive mortgage fraud...or some small-time investor who only commits a small fraud?
Oops...that's a trick question. They're probably more likely to prosecute the little guy.
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