Coming up with a down payment is usually the biggest hurdle for first-time homebuyers, although many new mortgage programs and changes have made getting it easier. Along with the Nehemiah, VA, and Neighborhood Gold programs discussed earlier, these ideas hopefully will spark sources you can tap if you’re short a down. While there are lots of creative ways to come up with a down payment, there are also a few fraudulent practices you’ll want to avoid. Here is a case in point.
An agent presented an offer on a home in an older neighborhood, one of the smaller houses in the area, with only a carport. Most of the other homes had been upgraded and had double garages added. Taking advantage of the potential to increase the home’s value, a buyer made an offer $20,000 over asking price with the money going to a contractor at closing for a new garage and some kitchen upgrades. The contractor’s bid was attached to the offer. The lender’s appraiser agreed that the upgrades would increase the value on his report, so the lender approved the loan.
The sale closed and the title company paid the $20,000 from the loan proceeds to the contractor to do the upgrades. Later it was found that the buyer was the agent’s sister and the contractor never did the work paid for. It was a scam to get the property for nothing down and get enough cash to buy still another property. The trio involved in the scam faced federal charges, because the loan was a government guaranteed mortgage, as well as state charges for fraud.
Another fraudulent practice to avoid is writing two contracts on one property, one for the mortgage lender with an inflated price high enough to cover the down payment, and the other between buyer and seller spelling out the real sale terms. The seller rebates to the buyer enough money to cover the down payment and get the house with no money down.
If an unscrupulous lender or appraiser suggests this approach, it’s not only fraud, but also a federal offense. That means there are hefty federal penalties if your transaction gets a random audit and irregularities are found. It’s just not worth it to try and fake a down payment that doesn’t exist. It only adds more controls and paperwork buyers have to go through and ends up costing everyone higher fees.
An agent presented an offer on a home in an older neighborhood, one of the smaller houses in the area, with only a carport. Most of the other homes had been upgraded and had double garages added. Taking advantage of the potential to increase the home’s value, a buyer made an offer $20,000 over asking price with the money going to a contractor at closing for a new garage and some kitchen upgrades. The contractor’s bid was attached to the offer. The lender’s appraiser agreed that the upgrades would increase the value on his report, so the lender approved the loan.
The sale closed and the title company paid the $20,000 from the loan proceeds to the contractor to do the upgrades. Later it was found that the buyer was the agent’s sister and the contractor never did the work paid for. It was a scam to get the property for nothing down and get enough cash to buy still another property. The trio involved in the scam faced federal charges, because the loan was a government guaranteed mortgage, as well as state charges for fraud.
Another fraudulent practice to avoid is writing two contracts on one property, one for the mortgage lender with an inflated price high enough to cover the down payment, and the other between buyer and seller spelling out the real sale terms. The seller rebates to the buyer enough money to cover the down payment and get the house with no money down.
If an unscrupulous lender or appraiser suggests this approach, it’s not only fraud, but also a federal offense. That means there are hefty federal penalties if your transaction gets a random audit and irregularities are found. It’s just not worth it to try and fake a down payment that doesn’t exist. It only adds more controls and paperwork buyers have to go through and ends up costing everyone higher fees.
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