Ask Bill your personal finance question

Information on consolidating debts with a home purchase loan

Is there a program that allows the consolidation of current bills in conjunction with a home purchase?

Is there a program that allows the consolidation of current bills in conjunction with a home purchase?

Read full question
Bill's Answer
3.5
/5.0
(4 Votes)

Bills.com | Find Learn Save
Highlights

  • Understand the difficulties in finding a loan for more than the value of the property.
  • Examine 'cash at closing' loans.
  • Shop around for the best loan for your needs.

Thank you for your question about consolidating debt you currently have in a purchase loan for a new home.

Finding a purchase loan that consolidates debt, while theoretically possible, is difficult to obtain. In some cases, this kind of loan is ethically and legally questionable. Obtaining additional funding at the time of purchase to pay off other debts, or for any other reason, is frequently called "cash at closing."

Cash at closing

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.

Beware of inflated appraisals

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, thus 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, not to mention 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 would likely not be able to sell the home for what you owe on it. 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 a in the past; this particular type of loan was a common scheme used by less-than-scrupulous sub-prime lenders, but with the collapse of the sub-prime market, lenders are much less likely to fund thus type of loan.

To shop for 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 your home search.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Get Debt Help!
3.5
/5.0
(4 Votes)

1 Comments

1500 characters remaining
  • DB
    Sep, 2010
    D
    My fiancee was looking into this as well when we bought a house! Our best solution was visiting a financial planner! It helped us figure out where we were financially before we bought a house!
    0 Votes

loading...