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REAL ESTATE Cap on cash back at closing?

yveskleinsky

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So this is where all the cool kids hang out?! Hope you don't mind me sitting down at the lunch table with you.

...I posted this on the RD form, but figured I'd get better feedback here. This deal that I am looking at is for $144k, and I would like to get about $10k in cash at closing for repairs and holding. I have heard that there is a cap on how much you can get back. Is this true and if so, what is it?
 

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andviv

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ask the lender

In my case I only have had issues with the lenders. They did not like any cash back that was more than 6%, but for what the bank representative told me, this is the number this particular bank uses. As long as the bank knows what you are doing and they are fine with it then you should not have any problem. There is no law that I know of referring to this.
 

biophase

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I've heard that it used to be 6% but that it's even less now. And also the money has to be for something... like repairs, new carpet, etc... It can't just be cash to be cash.
 

SteveO

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I have had cash back for repair credits in the past but the lender held the money until I did the repairs. I do know of plenty of people that have gotten cash back in the past. I'll bet that none of them talked to the lender about it. It is loan fraud to do this without the lenders permission.

The players that have allowed this to happen in the past have come under scrutiny lately and less of it going on these days.

Convincing the lender that you need these funds for the house repair may be a challenge. There are lenders that know how to deal with this process though.

I have had a fairly easy time of finding commercial lenders that will allow the repairs and temporary holding costs to be structured into the loan. An engineering report will tell the lenders what repairs need immediate attention. If it all fits into the appraisal, it is fairly common.
 

andviv

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I've heard that it used to be 6% but that it's even less now. And also the money has to be for something... like repairs, new carpet, etc... It can't just be cash to be cash.
When I did it (both as buyer and seller) the cash back was as help for closing costs and/or credit for some pending repairs. Once I got more than $5k in cash as part of a credit for repairs and rent back, but usually it was part of the settlement credits so I had to bring less money to the closing table.


I have had cash back for repair credits in the past but the lender held the money until I did the repairs.
I haven't encounter this sitution in SFH, I guess cause in my cases the properties where in move-in condition and the repairs were minor. I'd like to hear from others that have done it for partial or full rehabs in SFHs. I assume the bank would like to have the money in escrow accounts
 

Cat Man Du

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Most banks limit it to the 6%, but this amount is the highest and now some of the banks have a lower number.
 

Adam

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From a residential perspective, it is illegal to get cash back on a transaction that equates to more than the cash amount that you have vested in the transaction. IE - If you have $5K in earnest money deposited, you cannot recieve more than $5K back at closing in the form of cash. Now, most lenders will allow 3-6% back to the buyer to be used in the form of closing costs and pre-paids(interest, insurance, taxes). In some cases, the lender will allow for repair escrows, but that is becoming tougher to do now. The 3-6% percent that everyone is referring to can never be in the form of cash to the buyer(above and beyond the amount invested by the purchaser), it has to be "paid-out" at closing.

As far as holding costs that the original purchaser is referring to, there is one lender that will create an account that a related party to the transaction can deposit up to 6% into to make the intial payments (usually equates to 6 months payments).

The guidelines that I am referring to are from RESPA (Real Estate Settlement & Procedures Act) and Fannie Mae. This isn't to say that large amounts of cash back don't happen, it's just not always legal. And commerical is a whole different story...
 

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