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The Purchase and Cashout Question - The Bills.com Blog
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The Purchase and Cashout Question
Question: I need to get a loan large enough to purchase a house and consolidate credit card debt at the same time and with little down payment. Friends have told me they have purchased homes in this same manner...sometimes with no down payment... I've never purchased a home before and therefore am clueless ...how does this work?? I know there must be "penalty fees" involved for not having asufficient amount of down payment.
Answer: Unfortunately, I think it highly unlikely that you will be able to find a loan that will fit the parameters outlined in your question. You very well may be able to find a home loan with little or no down payment, but you probably will not find a loan that will offer you the cash you need to consolidate credit card debts at the time of closing. The concept of “cash out at closing” for buyers has become well-known in the sub-prime home loan market in recent years. However, the ethical considerations of this type of loan are questionable.
There are two basic methods designed to provide buyers with cash at closing on new home loans. The first envisions a seller who is desperate to sell his home, say a person in the beginning stages of the foreclosure process. In this scenario, the seller would offer the buyer a portion of his equity in order to encourage the quick sale of the home. For example, if a seller has $50,000 in equity in a home (the difference between the sale price and what they owed on the home), your purchase loan would be for the full asking price of the home, then the buyer
would turn around and give you a portion of their equity. The problem with this option is finding a seller willing to sacrifice a portion of his hard-earned equity; most sellers will scoff at the suggestion that they pay over part of their equity to the person buying their home.
The second method is considered somewhat dishonest by the mortgage industry, but it is used by some brokers to entice buyers into home loans. Basically, a broker and an appraiser collude to over-appraise the value of the home. For example, if the seller is offering the home for $450,000, the appraiser could appraise the home for $500,000, increasing the amount of the loan. At closing, the broker will pay the seller the $450,000 asking price, and give you the $50,000 difference as “cash out at closing.” The problem with this method is that it is fraudulent; you, the broker, and the appraiser are colluding to defraud the lender, which could be illegal, and many people would say is unethical. I encourage you to steer clear of any broker offering this type of financing. Another potential problem is that you will owe more on the home than the home is worth, which could be
a serious problem if you run into trouble with the loan, as you will likely not be able to sell the home for what you owe on it. For more information about this type of loan, you may want to read the article available at
Even if you are interested in this type of loan, you will probably have a much harder time finding a broker who will assist you than you would have last year. This particular type of loan was a common scheme used by less-than-scrupulous sub-prime lenders, but with the tightening up of the sub-prime market, lenders are much less likely to fund thus type of loan.
To look into low or no down payment home loans, I encourage you to visit the Bills.com Home Purchase page .
You can submit your contact information to the Bills.com Savings Center at the top of the page, and we will have several pre-screened mortgage brokers contact you to discuss the options available to you. I wish you the best of luck with you home search.
Also, make sure to get a free financial health check-up with Bills IQ!
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