Quick Question About Down Payments
I have a hypothetical situation and I want to see if I am correct in my assumtions about how downpayments work. If someone could let me know if I am right I would appreciate it.
Assume I have a house for sale with an asking price of $50000. Recieve offer at $50k. Buyer puts 10% down and finances the other 45k. Where does that $5k go to? does it go to me the seller or get held by the bank until closing? I mean I assume that at some point I will get the 5k and the 45k that was financed. Am I correct?
No I asked a question similar to this before but it ties into this question also. Assuming I could find a lender who either allows unlimited seller credits, or doesn't require to have the down payment sourced and seasoned, if I the seller were to give the down payment of 5k, I would just end up getting it back at closing yes? so in effect when I go to figure out my costs and profit and such I would figure it on the 45k not the 50k since that 5k was basically just a wash.
I hope this makes sense and I appreciate your comments in advance
Joe
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Joe,
If someone makes an offer on a house at $50K, then you will get $50K at closing, minus any closing costs paid by you, minus any loans that you owe on the property.
In the majority of situations, the buyer will only put down an "escrow" deposit to lock in the contract. That deposit may be given to the seller, but is usually handled by an escrow agent, real estate agent, or attorney, depending on your state and how you are selling. The 5% down will be required from the buyer at the closing table. They will hand it over to the closing agent and with their loan, come up to the total of $50K.
I would have your idea about "giving" the buyers a downpayment with your attorney before trying it. Even if it does not have to be sourced or seasoned, it could still be viewed as loan fraud if investigated (since it was never the buyers money at all).
Roger
Thanks for the response Roger. How would I find out on my own if that idea of paying the downpayment would be loan fraud? I mean are there statutes somewhere for that?. I mean I have heard of people being able to be gifted the down payment so couldn't I just gift it to them? Also could I just accomplish the same thing by reducing the price and having them do 100% financing for them or won't that work either?
Thanks
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Joe,
my opinion only, if your buyer has a lender that does not require the down to be sourced or seasoned, then you "supplying" the down for them follows the guidelines set by the lender. Strictly speaking though, even though it does not have to be sourced or seasoned, the lender requires that it be the buyers money, so in this since it could be viewed as loan fraud.
A simple way to decide if it might be loan fraud is this, if you don't or can't inform the lender of the FULL details of the transaction, then it is probably loan fraud.
Gifting is possible, but it requires an experienced loan officer/broker in order to get it done correctly.
100% financing will work only if the buyer qualifies for 100% under the lenders guidelines.
Roger
Thanks Roger I appreciate the info!
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It seems to me that you believe a "down payment" to be one and the same as an "earnest money deposit".
I believe that most of your questions are about the Earnest money deposit. Those are funds which are deposited in a 3rd party holding account when the contract is accepted ($1000 is common). That money will be 1. refunded to you if you rightfully withdraw from the contract within the allotted period of time, or 2. paid to the seller if you fail to close the deal as the contract describes, or 3. be applied to the purchase price when the deal closes.
As for the down....
Let's say the property is $100K. Your lender says they'll finance $90K (90% LTV). At close your lender will bring a check to the table for $90K. You might receive $2000 in concessions and prorations at close. You would be required to pay $8000 at close (plus closing costs, etc).
Look at it the other way around. Rather than figuring out your down, and working from there, start by calculating how much money will be coming to the table, subtract out the purchase price and the closing costs, and THAT is what your down payment will be.
Thanks for the response hibby, you are sort of correct in your post about what I am looking for.What I am basically doing ins trying to be as creative as I can be for my buyers without stepping over the line. One of my last posts goes into this into a little more detail aaand I can't find that post to refer you back to. oh wait I found it http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=viewtopic&topic=24528&forum=12 if that helps any in your advice.
Thanks
Joe
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