Buy a home and get cash out of the deal?

Ok so a friend in the real estate investment business told me that you can buy a home and get cash out of the deal. This person uses this cash to pay the mortgage for the first year.

I talked to another friend who said it is illegal to get more than 3 percent out of the deal in CA.

So who is right and who is wrong? To me it sounds like good a good investment strategy to buy homes where people have alot of equity in them and then rent it out or live in it while it appreciates, and to use that cash incentive to help with initial bills.

Anyone with knowledge and advice on this matter? I really want to get into real estate investing but, I want to do it right! HELP!

Buy a home and get cash out of the deal?loans uk

This is the kind of scam that led to the sub-prime lending fiasco. You%26#039;re betting that the value of the house is going to increase beyond the initial mortgage. Some lenders will lend upwards of 125% of the appraised value of the property, but the bottom line is you have to pay it back with interest. In the end that %26quot;free%26quot; first year of living may cost you upwards of $100K. At 5% interest, every $10,000 borrowed results in about $20,000 repayment over 30 years.

Buy a home and get cash out of the deal? loan

What your investment friend is doing is illegal and undisclosed to the lender I assure you. Basically, how a sales transaction works. Lending is based on the contract sales price. Loan to Value calculations are then based on the contract price, buyer brings any down payment and cash to close the deal. If the buyer is getting BACK money at the closing table, it can not exceed what the buyer brought to the transaction. ie Down payment (earnest money) or closing costs, or closing costs concessions.

Closing Cost concessions (what the seller will pay for the buyers closing costs) is capped by the lender usually either 3% - 6% of the contract sales price.

What you are describing is FRAUD. The seller/buyer have agreed on a sales figured LOWER than what the sales contract states. The seller agrees to give the amount OVER stated back to the buyer, this is NOT legal. Real Estate professionals, mortgage brokers and investors are being arrested for this and serving jail time.

If the offer is too good to be true, it usually IS.

Best of luck, be careful

Do the right thing, you will always be on the right side|||The illegal way is to have the seller pay you cash outside of escrow once you purchase the house. For example, the house is worth 100k but the seller is selling it for 80k. You then tell the seller that you will buy it for 100k if they give you 20k outside of escrow. This is highly illegal and is called mortgage fraud. You, the seller and the mortgage broker can all get in major trouble.

Usually lenders will allow up to 3% of the house price to be credited to the seller for closing cost, which is legal and what your friend is talking about.

The legal way is to buy an undervalued property and get a cash out refi or a home equity line of credit once you have purchased the property.

e-mail me if you%26#039;re in Southern California and maybe we can work something out.

Regards