Is this Illegal?

[black95gt]

Is it illegal to agree upon a price for say 190,000 but then write the contract for 205,000 so that the seller will pay for my 10,000 down payment and closing costs?  If so, how do i go about not having to pay the down payment and closing costs out of my pocket.  Thanks

[rbaxter]

That is legal.  As long as the home appraises for the $205,000 price, you are OK.  Some lenders have limits as to the total % of the sales price the seller can contribute and also some will not allow the contribution to go toward down payment.  Just depends on the lender and loan program.

[black95gt]

ok, i thought it was legal, but wasnt sure.  My broker says to come up with an price agreement, and he'll tell the seller how to set up the purchase agreement so that no money comes out of my pocket.  Thanks for your response

[Maciej]

yes its perfectly legal, its called sellers concession. It where the seller has the sales price bumped up by what ever the amount of the closing costs are. You have to do this before the house is appraised, obviously and have teh appraiser check to make sure they can get few extra thgousand to make up for the closing costs.

[black95gt]

is it legal for me to do a 10% seller note on the unit and then dismiss it at closing?

[Maciej]

to be honest with you that I have never heard of, not saying it hasn't been done but usually a sellers concession is capped at 4, 6 maybe 8% tops depending on the lender. To do the 10% and the closing costs seems a little out there.

[rbaxter]

Are you saying that, for instance, the seller wants to sell at $90K and you instead pay $100K, the seller carrying the $10K difference as a 2nd, then "forgiving" it after closing?

If so, legal, probably not, but these kind of deals are done.  Also, if the agreed-upon price is $100K, the home would have to appraise there for a traditional lender to finance it to $100K.  Also, they will consider the $10K seller note to be a 2nd mortgage when calculating CLTV/LTV ratios and determining what you will get for rate and terms.

[black95gt]

My mortgage broker is the one that told me to do this and have seen other people on here talk about this.  I dont know anything about it, but dont want to be doing it if its illegal.  But yes, that is what we are doing.  Buying for 190,000, and seller does a note for 10,000 and then rips the note up at closing.

[rbaxter]

This would be a good questions for a real estate attorney.  I call these kinds of transactions "parking lot" transactions.  They are done every day, but whether they are legal or not, I don't know.

[ezstorm]

This is a technique that i have used more than once over the past 20 years or so. If the seller agrees to rip up your seller carry back mortgage of $10,000 that is yours and his business. Seems no different than buying back the note at a 100% discount, although you may ought to give at least $1 for it to make it legal. No one has ever told me otherwise.

But I did try this week to purchase 3 Four-Plex's for $400,000. They appraise at $460,000 so I tried to get the realtor to write it up for $448,000 so that i could get my 85% financing from my lender. The other 15% was to be carried back by the seller. I wanted the difference of the remaining balance over $400,000 back from the seller to be used for future deals. Real Estate agent said that was fraud. Maybe it was in this situation.

Has anyone tried this before?

[Ralph]

Yes its legal. In Missouri they allow you to provide credits up to 3% of the sales price. We show it as "Seller to provide up to 3% towards Buyer's downpayment, closing costs & or pre-paids on the contract . As long as the house appraises you are fine. This is done alot with first time buyers also.