Can I overpay for a house and have the seller give me back the excess in my contract?

Question

Here is my situation, I have no money at the moment. I am going to possibly purchase a 1920 victorian that needs some work done to make it comfy for winter. My problem is I won't have the money in time to get this done.

THE QUESTION:

Can I agree on a purchase price of say 220k, then in my contract buy the house for 230k (getting a 230k mortgage) but in the contract the seller gives me a "10k home improvement bonus" so I can make the improvements I need to? I get the extra money I need, seller gets the money he needs, everyone is happy.

Answer 1

Everyone but the lender is happy.  You’d have to get the agents involved to forge documents to make this happen, and then you’re all committing fraud.  The lender is looking at the purchase price on the contract when deciding what to give you.

As far as I know, it’s illegal for the seller to give you money after the sale. They can make repairs to the home or reduce the sales price by the cost of repairs per your request.  They can even put the cost of a repair into escrow until it’s complete if it cannot be done until after the sale closes, but they cannot give you money.

You’re also forgetting that your loan would be for $220 minus the amount of the down payment required by your loan program.

Address your cash flow issue before buying a house. Homes are a constant source of expenses from maintenance to repairs. You absolutely want to have money in savings before buying a home so that you can deal with surprise costs as they arise.  

Answer 2

No, everyone is NOT happy, and the one who is not happy is going to be the lender involved, who will not agree to such a situation.  "Cash back at closing" is now a piece of history.  Lenders got burned far too often on such deals in the past.

Answer 3

Everyone is not happy.   Some will go to jail.

You are talking about committing loan fraud, it is not legal.  The seller can not give you any money at all.

He can give you the 10k, but he can only subtract that from your loan amount, not give you actual cash.

For a 220k house you are going to need 44k for a down payment and 3-5k for closing cost.   You might get away with only 6k down, but then you have to pay PMI.

Answer 4

There are some companies out there that can help make these arrangments for you. For example: I went through a program called NACA. I believe their website is NACA.com. Included in the program is a maximum amount they will fund you for, which includes repairs. For example: you get a loan for 300,000. You must find a home less than 300,000 including after repairs. So say you get a loan for 300K, buy a house for 290K and the other 10k they will let you use for repairs.

The only thing about NACA is there is a lot to the program. For example there is an orientation you must attend and you have to meeting with a mortgage counselor which may or may not be in your city. But it is well worth the wait and stuff you have to do because there are many PLUSES to this program.

P.S - NACA is not a lender. It is a company that wants everyone to own a home. They find you lenders that are willing to give you below market rates just because they want your business. At least attend the first siminar. you will be so happy that you did.

Answer 5

no you cant i wanted to get some money when we moved ,but  you can get loan for more

Answer 6

NO that is lender fraud. A Big NO-NO these days

Answer 7

And the bank is expected to loan more than the house is worth? "Kickbacks" are generally considered felony fraud.

Answer 8

What you are proposing smacks of fraud. Why not find a place that doesn't require expensive repairs.

Given the condition of housing and the economy in the United States, today, I doubt you will be able to buy any house without a down payment.

Answer 9

I doubt you can do that...and if you aren't able to get enough of a mortgage to do that, then you are looking at too high a price for your ability to pay.

Answer 10

Yes, as long as the house appraises for $230K...the bank will only lend up to the appraised value.  And as everyone else has said, there will be other costs to consider (closing costs, etc.), plus down payment.

Basically, for everything to work and you walk away putting nothing down, you will need the house to appraise for probably $250K and find a lender willing to let you pull money out of the contract AND put it all in the contract.

Legally, this is all doable - practically, don't see it happening in today's market.

Answer 11

The Seller won't be happy when he gets a 1099 Form for $10,000 more than he received.  There is a tax implication in this, and is against the law, although lots of people would like to do this.

Answer 12

If you have no money - how are you going to buy a house?  

And the answer to your question - NO this is Fraud and all the "happy" people involved will be in trouble.