Would this be legal?

[LuckyFish]

Texas.

Previously posted, but no response. I tried to be more specific this time.

I'm a first time home buyer. Is it okay (legal) to purchase/finance the condo for more than the sales price and keep $5-$10K for remodeling (say the seller would give back monies at closing)? I have heard both yes and no, but would think myself that it would not be legal. Thank you in advance for advice.

 

[HomeGuru]

Texas.

Previously posted, but no response. I tried to be more specific this time.

I'm a first time home buyer. Is it okay (legal) to purchase/finance the condo for more than the sales price and keep $5-$10K for remodeling (say the seller would give back monies at closing)? I have heard both yes and no, but would think myself that it would not be legal. Thank you in advance for advice.

**A: and why would the mortgage lender loan more than the amount of the sales price? The lender loans an amount ( percentage) based on the value as determined by appraisal or the sales price, whichever is LOWER.

 

[LuckyFish]

Thank you, HomeGuru for your speedy reply. I don't know WHY...I was hoping they would allow for improvments that might need to be done. The condo sales price is $23K and appraisal should come in b/t $40-$47,000, even while needing new carpeting, cabinets and some other minor things. I had heard that there was such thing as as 203K loan (mortgage, plus improvement monies), but I heard that was difficult to do (and expensive). I was wondering if there were any other options besides financing $23K for mortgage (small amount...they may not want to do that) and separately applying for loan for improvements.

 

[Samm1970]

It is alloweable to include certain costs into the purchase price but they can only be used to pay closing costs and prepaid expenses in most cases(taxes, insurance and per diem interest). The amount the seller can pay toward these items is determined by the loan program you choose and the amount of down payment. For example if you plan to utilize conventional financing and your down payment is less than 20%, the maximum the seller can pay toward closing costs and prepaid expenses is 3% of the purchase price.

The purchase price on the purchase agreement must be the sum of the asking price plus the fees the seller will pay on your behalf. Obviously the financing addendum must clearly state the amount the seller is paying on your behalf.

If you want the seller to pay for all of the closing costs, prepaid expenses and the down payment, use FHA financing. For a small fee, you can enlist the help of a non-profit organization to essentailly launder the seller concession. The non-profit will provide the funds to you at closing as a grant. This is perfectly legal under FHA guidelines. Go to www.buyersfund.com for more information.

The only thing you need to be sure of when using the buyers fund is the property needs to appraiser for the exagerrated sale price. Sounds like it would in your case.

Your mortgage loan officer should know about this so ask him/her. If they don't, ask them to research it or use a different mortgage person.