I have a question about investing in real estate, tell me if you think this is legal?

OK, so I read in this book a technique to obtain 100 percent financing on an investment property since most conventional lenders won't allow 100 percent financing. Tell me if you think this is legal. First you need to find a property that is selling at a large discount to the appraisal value. To make this example easy I'm going to use round numbers. Say you find a property appraised at 100K and the owner is willing to sell it for 80K. You agree with the seller that you will purchase the property for the full 100K but they will give you a 20K allowance for repairs and updates. So you go to your lender, get 80 percent financing, which will give the seller his 80K and then his 20K allowance covers your down payment so you put no money down at closing. I know that was a lengthy example but is this legal? It seems too easy and I have asked several ppl and no one can give me a straight answer.

The answer is that it depends on the loan guidelines. Most loans limit cash back from seller to 5% of the purchase price. I really doubt you will find a lender that will allow that much in seller concessions, especially on an investment property

Some lender will allow this but there are few left. It is called a gift of equity. Usually you must be related to get that gift. They will not give you cash out though. You would have to refinance after the purchase which you can only do if you have excellent credit. You can make arrangements with the seller if you can trust them to purchase the property at 100k and have them give you the 20k.

Most likely no. You have to make all money transfer known to your lender. I don't know any lenders that will allow the seller to make the down payment. Especially into todays mortgage market.

It's perfectly legal, if done right.

I got started this way, and have example on my site. Here's the rub .... YOU MUST disclose the money coming back from the seller to the lender. Some people say you can do this under the table, NEVER hide it from the lender. If you do, you can get in huge trouble (it's called defrauding a lender).

The other thing is ... this is actually an older technique. These days, lenders require you to prove you have the 20% down in the bank and ready to go. They frown on borrowed down payments for the most part.

If you can find a lender to go for it, and you disclose you are receiving the money back from the seller at closing for repairs and improvements .... it is perfectly legal. Hide your dealings from the lender, and you can get into trouble. Honesty is always the best policy.

Todd

MillionaireCoaching.com
HomeBuyingSecretsExposed.com

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