Posted on: 09th Jun, 2010 10:35 am
Hi all,
I am planning to ask the sponsors to increase the purchase price (on paper) of the condo by 20K to cover some of my closing costs. Since I am new to this:
1. How does this money come back to you? Do the back give a check to the sponsors for the loan amount and the sponsors in turn give you a check for 20K. If yes, when does this happen--on the day of closing?
2. Are there any disadvantages in the long run to use a strategy such as above (increasing the purchase price to cover closing costs).
thanks,
Sripal.
I am planning to ask the sponsors to increase the purchase price (on paper) of the condo by 20K to cover some of my closing costs. Since I am new to this:
1. How does this money come back to you? Do the back give a check to the sponsors for the loan amount and the sponsors in turn give you a check for 20K. If yes, when does this happen--on the day of closing?
2. Are there any disadvantages in the long run to use a strategy such as above (increasing the purchase price to cover closing costs).
thanks,
Sripal.
Welcome coolguy,
I don't think it would be a good option to raise the purchase price of the property. Moreover, the property value will depend upon the appraisal of that property. If the purchase price is more than the appraised value, it can be considered as a fraud and you may not get a loan.
I don't think it would be a good option to raise the purchase price of the property. Moreover, the property value will depend upon the appraisal of that property. If the purchase price is more than the appraised value, it can be considered as a fraud and you may not get a loan.
Adonis, I would have to respectfully disagree with you there. To my knowledge, there's certainly nothing wrong with "padding" the offer price for a home with the amount you'd like the sellers to contribute toward closing.
If you think you'd like to offer $200,000 on a house, but can't afford the $10,000 in closing costs, there's certainly nothing wrong with offering $210,000 for the house, and asking the sellers to contribute $10,000 toward closing. What it means is the sellers essentially netted $200,000, and the buyer's $10,000 were covered.
There a couple issues with this: the first one is that you'd be financing the $210,000 instead of the $200,000, so you'll pay more in interest and down payment. The other issue is that the house will need to be appraised by the bank for at least $210,000. If the bank appraisal is lower than $210,000, they're only going to lend the buyer the amount they come up with. If that's only $205,000, then the buyer is either going to have to come up with the other $5,000 to cover the accepted offer of $210,000, or back out of the deal (which can be done in this case with no penalties on an FHA loan).
If you think you'd like to offer $200,000 on a house, but can't afford the $10,000 in closing costs, there's certainly nothing wrong with offering $210,000 for the house, and asking the sellers to contribute $10,000 toward closing. What it means is the sellers essentially netted $200,000, and the buyer's $10,000 were covered.
There a couple issues with this: the first one is that you'd be financing the $210,000 instead of the $200,000, so you'll pay more in interest and down payment. The other issue is that the house will need to be appraised by the bank for at least $210,000. If the bank appraisal is lower than $210,000, they're only going to lend the buyer the amount they come up with. If that's only $205,000, then the buyer is either going to have to come up with the other $5,000 to cover the accepted offer of $210,000, or back out of the deal (which can be done in this case with no penalties on an FHA loan).
Thanks. If we go ahead with this and say the appraisal is the same price as the asking price and everything falls into place, how does the money transaction occur? At closing the lender gives the sponsor a check for the loan amount. When do I get the money from the sponsor to pay towards the closing cost? What I mean to ask is how does it work practically on the day of closing
As far as I know, the sponsor would immediately give you the money in order to pay towards the closing costs.