Cash back at closing

[Daniel H.]

Quick question. If I purchase a property with some cash back at closing, do I pay the higher price and then the seller gives me a check for the cash or do we take that out of the price at closing?

Example. I pay $100,000 with $5,000 back at closing.

80% loan.

Do I pay $20,000 for the down payment and then get $5k back at closing or do I just make $15,000 for the down payment and the seller gets the extra money in the check from the bank?

So if I was to make an offer on this house, I would make the offer for $100,000 with $5,000 back at closing. Loan amount of $85,000?

[Jon Holdman]

Originally posted by Roy N.:

@Daniel H.
If the vendor or realtor is offering cash-back at close, keep it between you and out of the communications to your lender (if you can) ... otherwise, you lender is apt to reduce the size of mortgage they will take by the cash-back amount.

Assuming this is an ordinary residential loan, this is loan fraud, pure and simple. Any agreement between the buyer and seller MUST appear on the HUD-1.

The $5K in your example is a credit from the seller to the buyer. Lenders do have limits on these credits. This isn't really cash back at closing. Rather, it reduces the cash you have to bring. With the terms you describe ($100K purchase, $80K loan) and ignoring other costs, the closer would tell you to bring or wire $20K to closing. With the $5K credit, they would tell you to bring only $15K.

It would need to be a credit for something specific. Like repairs or closing costs. If its just a flat out "here's $5K", then you really are paying only $95K for the property. If the lender is willing to do a 80% LTV loan, you could then borrow $76K rather than $80K.