Posted by Ben (OH) on October 09, 2002 at 07:30:56:
Where in Ohio do you invest?
A different down payment technique - Posted by Ed Wall
Posted by Ed Wall on October 08, 2002 at 19:35:48:
Hello All,
I’d like some feedback on a situation I’ve recently run into. I saw an ad in the paper that said “house for sale, would make great rental.” When I called the seller, he said he would pay the 10% downpayment and the closing costs, getting me into it no money down. What he has in mind is jacking the price up by 10% plus $2000 (closing costs), so that he gets out of it what he wants.
The house appraised at $75,000, and since he only wants $58,000, the numbers work. I saw the place and it looks straight and solid. It should rent for about $850 to $950, in that area.
I told him it sounded great to me, but that I’d get back to him. Frankly, it kind of worries me. Does this constitute fraud? As far as the lender knows, the downpayment is coming from me. A realtor friend of mine told me this is illegal.
So, what does anybody think? Is it legal? Have any of you done deals like this? I don’t want to lose the deal while I think about this, but I don’t want to get into trouble, either.
I’m in the Kansas City, MO area, if that makes any difference
Your feedback is greatly appreciated.
Ed Wall
If he weren’t jacking the price up… - Posted by Tim (CT)
Posted by Tim (CT) on October 10, 2002 at 12:45:47:
wouldn’t this be O.K.? Isn’t this a form of an owner carryback? I mean, if I was selling a house for 100k, couldn’t I take a second on the place for 10% of the price and put up the 10k for the buyer as a downpayment where they would get a 90% LTV mortgage?
Re: A different down payment technique - Posted by SCook85
Posted by SCook85 on October 09, 2002 at 17:00:39:
Ed,
Yes this is fraudulent, and it is illegal. There are many ways you can manipulate it and get it done. But the true way to determine if it can be done is to tell the lender what you are doing- I don’t mean the mortgage broker, the person or company writing the check is who you should tell your intentions to. If they say it is OK and still want to do the deal then do it. But I can guarantee you that 99.99% of all lenders are going to say no and walk away.
I recently sold a home to a guy with no money down, I paid the closing costs, and the lender funded 75% of the deal. This was through a bank, however the bank knew exactly what we were doing, and I am legitimately holding the second mortgage for $25,000.
I hope this helps,
Steve
Re: A different down payment technique - Posted by Stacy (AZ)
Posted by Stacy (AZ) on October 09, 2002 at 01:46:11:
Didn’t you ask this same question yesterday? Did you ask him how he planned to do this? It seems this would help a great deal in this discussion.
Did you ask if he’s using a gifting service like I suggested yesterday? You need to simply ask him what’s up.
Re: A different down payment technique - Posted by Eric (ohio)
Posted by Eric (ohio) on October 08, 2002 at 21:36:06:
Ed,
Some lenders will allow the seller to contribute up to 6% of the purchase price for closing costs etc. The contract price can be adjusted to cover this as long as it will appraise at that.
As far as inflating the price to cover the 10% down payment you as the buyer would need to show these funds in your bank account already to qualify for the loan.
I would take a closer look at this deal. First of all why is he so motivated(to the point of fraud)to sell it.My guess would be and you can verify it the your counties records is that he purchased it at a very steep discount did some renovation and put a tenant in and is now marketing the property to novice investors or similar.
The cash flow may still work but take into consideration you too can find these types of deals and avoid the middleman.
In my area there are several people engaged in selling to novice investors. Most of these novices are getting screwed over by these guys and it makes me sick.
Be carefull and good luck!!!
Re: A different down payment technique - Posted by Shawn J. Dostie
Posted by Shawn J. Dostie on October 08, 2002 at 21:00:40:
We have had a lot of discussion on this particular subject. Any type of price manipulation without lender knowledge constitutes fraud. However, if you have something of value other than cash that you can use as down payment, for example perhaps some rare coins, or an automobile, or a piece of land that you own… In other words, something in which you can justify 10% of value and sell that to the seller in lieu of down payment. You have to take a hard look, kind of a checkup from the neck up, because someone less ethical than you quite likely will do that.
Good luck,
Shawn(OH)
Re: A different down payment technique - Posted by Travis (Dallas)
Posted by Travis (Dallas) on October 08, 2002 at 20:56:19:
Try www.getdownpayment.com, thebuyersfund.com, and thegenesisprogram.org
Legal way for seller to gift the money to you.
Nehemiah Program, Neighborhood Gold and the Geneis Program are the names of three programs.
Good luck,
Travis
Re: A different down payment technique - Posted by Clay
Posted by Clay on October 08, 2002 at 20:43:40:
You might be able to do the same thing without breaking the law. It would not be leagle to let the seller make your down payment. However there are companys that will gift you the down payment. Most charge about $600 pluss the gifted down payment to the seller. If the lender has full knowledge of the gift this way it is OK. The lender will probably make you put some of your own money into the down payment.
Re: A different down payment technique - Posted by GL(ON)
Posted by GL(ON) on October 08, 2002 at 20:41:20:
If the appraisal is genuine I can’t see what the problem is. The bank is getting plenty of security.
Would they approve if they knew he was taking a second as a down payment? What if the second mortgage was on another property you own?
You could write up the second as having no payments for a year, then he could sell it to you at a discount after a month or 2. Say for $1. You would want to have this in writing of course.
Re: A different down payment technique - Posted by David G (OR)
Posted by David G (OR) on October 10, 2002 at 02:40:50:
I know you do everything on the up-and-up, but aren’t the “non-profit” programs like the Nehemiah Program, Neighborhood Gold and the Geneis Program a legal way to effectively get 100% financed?
David G.
Re: A different down payment technique - Posted by Ed Wall
Posted by Ed Wall on October 09, 2002 at 01:57:36:
Oops–sorry about the repeat: I meant to post this one over at the financing forum. Thanks for responding anyway.