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So there is house I would like to work out a deal on but the house needs some updating.. for the sake of this conversation lets say the purchase price of the house is 255k and the I would like to put in around 25k into the house in the form of "improvements"??..
I am guessing one option would be to negotiate the work to be done prior to close requireing the seller to do it but the house would really be unliviable during the process.. And then there is the concern of I want control over all improvements that are to be done
My delema is interest rates are awesome right now and i really want to borrow as much as possible on the home with one low interst rate loan...there are a few banks in my area that have $125 closing cost all inclusive loans available which is why I am not crazy about trying to fool around with construction type loans or improvement loans that will require me to change the type of financing and increase my costs for no reason.
( most of the work I want done is cosmetic and will add onle a little value.. ie.. wood floors sanded, new heating system, kitchen and bath ect...)
So what is the problem with working out a deal where I buy the home at an inflated price (assuming the appraisel still comes in) and having the seller just give me some cash at.... after closing (I know there would some fine tooning of how to do this and keeping it discreet) the bank need not know.. is there really a major legal risk to doing something like this? is there a better and legal way to do this?
FYI... banking has changed in the last few years.. I can't get a loan based soley on the appraisel value..ex. house appraises for 300k and I buy it for 250k... bank will not give cash back at closing anymore.. The bank will wants 20% down payment and loan amt based on the purchase price of 250k ONLY..
I think what you're looking for just doesn't exist anymore. People are having a tough enough time getting lenders to fund purchases at market value let alone above market value. If you're buying this house under market and wanted to change the price to market value then maybe you could get this done, but then you'd have to get the seller to give you that extra money back so then how does that work? The bank is not going to allow a closing credit of that size on this kind of purchase. I don't think the seller can just give you that money and still have it on the HUD, but I'm sure others will chime in on that subject.
Really, I think your best bet is a 203K loan on top of your purchase loan. Then maybe when you're done you refinance it into one loan. If you're only doing $25K in work that shouldn't take long to do and interest rates likely won't move much. There's no way I would ever have a seller do that much work on my behalf. That's just a bad idea.
You do not want the seller involved in doing the improvements. It needs to be 100% in your hands and control, your contractors, your negotiations, your approval.
The bank is certainly not going to allow you to purchase a home and get a loan based on the purchase price and then let the seller give you 20k in a brown paper bag..
I would imagine that this is fraud.. I am telling the bank I buying the property at one price when in reality I am not..
All of the other legitimate avenues that I am aware of (203k loans ect) are not worth it where I am looking at 20-25k in work being done.. those loans are expensive and I would miss out on the great financing avaiable with just a standard conventional loan..
I guess what I am asking is what are the legal implications?? am i really taking on a big risk working out a side deal with the seller with out invlovling the bank?? the seller will not be claiming any gain as it is her primary home.. no one would know??
or maybe there is a legal way to do this.. and I dont mean selling her my mt bike for 20k he he
You can get a seller contribution but it can only go to closing cost and its probably capped at 3% or 6%. In my case I used a seller contribution to prepay the PMI and also paid one point on my loan to get a lower interest rate. I don't think there is a way to do it beyond closing costs.
Yes, there's a major legal risk- the bank and the title company will require an "all in" contract to close, at that (inflated) purchase price. You'll have to close the deal, then trust the seller to hand you a stack of cash after closing.
If they refuse, You'll have to pay an attorney to sue for that money, explain your scheme to a judge, and if all that works, you'll have to collect a judgement.
If your credit is good, you might be able to score a low interest credit card deal to fund the renovations, although if those renovations add no value, it's hard to see why you would spend the money.
It violates federal law to get cash back under the table like that. The law is the Real Estate Settlement Procedures Act or RESPA.
The interest rates for the 203k rehab loans are still really good. I've done several this year and it is a great loan product. It isn't a loan on top of another loan. It is just one loan insured by FHA. It takes about 60 days to close them and work just needs to begin within 30 days. The types of things you are wanting to do are totally inline with the program.
True story from this year. My last rehab loan clients. I negotiated a great deal on a property for them. The property appraised 16% higher than our contract price as-is. They were maxing out the loan so doing $35k in remodel work. With the remodel work the property appraised for 46% higher than our contract price. If you play your cards right, you can get yourself into a nice equity situation.
It violates federal law to get cash back under the table like that. The law is the Real Estate Settlement Procedures Act or RESPA.
The interest rates for the 203k rehab loans are still really good. I've done several this year and it is a great loan product. It isn't a loan on top of another loan. It is just one loan insured by FHA. It takes about 60 days to close them and work just needs to begin within 30 days. The types of things you are wanting to do are totally inline with the program.
True story from this year. My last rehab loan clients. I negotiated a great deal on a property for them. The property appraised 16% higher than our contract price as-is. They were maxing out the loan so doing $35k in remodel work. With the remodel work the property appraised for 46% higher than our contract price. If you play your cards right, you can get yourself into a nice equity situation.
^^^This
What the OP has asked about is Loan Fraud, and there are major legal risks.
Go with a 203k instead, it is fully legal.
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