Cashback on sale

[Hutchym]

Hi all!,



Question about downpayments from the pros. Just a quick question on whether this scenario works legally and what the challenges of it may be (past experiences would help out too) with todays mortgage rules.



Country home Asking price - $100,000



Country home estimated value - $120,000



Can I offer $120,000 and receive $20,000 cashback from the seller in cash pre-deal?



The idea being that the buyer will end up with exactly what they were asking on the property and end up happy, as well as I get partial/full downpayment on property?

Basically looking at different financing options. The following is just an example so if you needed more information to answer this question, please let me know!



Much appreciated,



Mike

 

[housingrental]

No

 

[Stephen1151]

Yes...I did this on my last purchase, not for the full down payment but for a good portion of it. It is legal but also frowned upon by the lender. You must have a good mortgage broker. My mortgage broker has processed many of these cashback deals and knows what he is doing.

 

[GaryMcGowan]

I would not look at doing deals like this as 9 times out of 10 most are committing fraud. You can not have any side deals with the sellers which the Lenders and Lawyers do not know about.

Your Lawyer will have to sign off on this which is unlikely.

 

[Mike Milovick]

Gary and Adam are correct. This has the potential to be mortgage fraud.



All components in the real estate transaction must be disclosed to bank and lawyer. If bank is happy with you receiving cash back - and this has been disclosed, that is awesome. Otherwise, if you haven't disclosed, you are looking at jail if you are caught.

 

[fumbrunner]

There is nothing wrong with the transaction, as long as the transaction is DISCLOSED to all parties. You will likely have trouble finding a financial institution to finance it however.

 

[Hutchym]

I appreciate all the feedback and reasons. Tax fraud... uurrgghhh... Its a private sale I noticed on Kijiji of all places. I spoke with the owner and took a look at his home which seemed like quite a good deal. However at this time I do not have the cash for the home. That is when he offered to give 10% (our of the 20 required) percent. As said, I appreciate the feedback. Private lender, is this an awful idea? just getting some discussion on this.



Take care,



Mike

 

[GaryMcGowan]

Put together some real numbers. To purchase the property you need approx. 25k with a 80% ltv mortgage.

What are your plans for the property?

What are your exit plans

What will it rent for?

Is 120k realistic?

Are you comfortable with the location?

Is there a market for this property? rental or sale.



You may find the cash you are looking for by just asking those around you to partner on the property. You need to have a clear laid out plan on what your plans are for the property.

Private lenders may be a good route. You will pay a little more on interest but if your numbers work then it could be a fit.