July 15th, 2011 | 
Author: 
Question: Whats the best (and safest) way to prepare a real estate contract when buying a FSBO home?
I don’t want to get a real estate agent involved but I’ve been reading about real estate attorneys. Can someone provide an in depth description to this process. We will also have a unique situation that will need to be expressed in the contract. We are asking them to raise the price $ 10K and then give us that money back after closing to pay off two of our loans. We are doing this because our lender told us you can no longer borrow extra money on a mortgage for “improvements” or whatever else. Thanks
@ acermill. The lender suggested this to me and said it did not violate any laws or regulations and the homeowner I am buying from said this option was given to him when he bought the house but he did not pursue it.
Answer:
Answer by My Take on It
You need to open up the yellow pages and hire a good real estate attorney. Do not attempt to do this on your own without an attorney or real estate agent.
Posted in 
Tags:
When you get a real estate attorney involved, he will advise you that what you are attempting to do is lender fraud. Yes, that is correct. You can’t just raise the price of the house by $ 10,000, and then get that back after closing. Your lender informed you correctly. You are attempting to circumvent this process.
Your lender was right.
As long as there is value in the home then you will be able to do that.
eg. the house you are buying is worth (in the bank’s eyes) 500
your offer to them was 480. since there is still room (of value) you could ask for the sellers to credit you the money.
In the past putting a 500 purchase price and the offer would come in at 520 and asking for 20 back does not exist anymore. Its just another way that the banks got screwed up in the first place.
Doing this on your own is a big NO, No. The reason being is…lets say something does go wrong and you dont know what to do next. It’s going to cost you a pretty penny to fix the situation. I’ve heard horror stories and the last thing you want to do is become one of them.
You should get a real estate attorney some do this in different states and some get Realtors. Both are fine. But, doing this on your own is the big No, No. I would not advise that.
your lender is 100% wrong; they may not make rehab loans
but such are positively available!
my peers are correct; use a RE atty to get your
contract written.
if the house is worth more after the 10k increase, all is well.
When dealing with a FSBO please beware. You do not draw the contract up the owner of the property does. They have forms at Staples or any office supply store that are legal and binding. Real estate attorneys won’t be much help other than writing up a contract with general clauses. You can request a special clause for that $ 10k but let me tell you that is definitely against the law. You can not ask to raise the price of the property so that you can get cash back. That is not how it works. The lender is wrong in telling you it wasn’t violating any laws. Acermill is correct and I back him up.
The lender is also not telling you everything about extra money for improvements. Let me explain that your initial loan is for the property and a 203K loan is for improvements. This 203K loan is actually a second loan, not an additional money contract.
Beware of this situation when a Seller and Lender are working together. Those are immediate RED FLAGS!
When a seller and lender state that an option was given to accept cash back then you need to report both the seller and the lender to the state.
If all your questions are answered you might want to consider drawing up a contract between you and the owner. This simply mean that you have agreed on a sales price, a down payment, who will pay closing cost and the amount or percentage that will be paid by each. You will also need to add into the contract a potential closing date. This date will not be locked in stone, but a date where you could potentially be close or near closing or perhaps closed.
Once this contract is signed by all parties concerned take this signed contract to an licensed escrow closing agent. Once escrow is opened you will be assigned an escrow officer. This escrow officer will prepare Escrow Instructions based on the signed contract you and the seller gave them.
There might be additional things necessary, the escrow closing agent will request them from whom ever they are needed from.
You will also need to have a title company that will take care of all the title paper work. You might get a referral from the escrow closing agent, however, you could find one in your local telephone book.
Again you will be assigned a title officer.
These two agencies work for you, if there are any questions about the transaction you need to ask them so they can keep you abreast of how the transaction is going.
While this is going on you would need to also have your escrow officer contact you mortgage broker or banker to see how this is going. They will pass information between the two that they need. Introduce your title officer to the mortgage person also.
Between the three mortgage professionals they will now walk you through the purchase process and complete the process.
At sometime during the process you would have to be apply for and be approved for a mortgage loan.
You will need the following and will be told at what stage each is required
#1 an appraisal of the property- This confirms the sales price for the lender. The
#2 a home inspection (Paid for by you)
#3 a possible roof certification
#4 you will sign loan docs
#5 a closing will take place.
Of course there is no way to list everything that will happen during this transaction but this is close. You will be advised by your professionals if other things are needed.
Communicate with these people and by all means make sure at each stage you ask questions. Failure on your part to ask questions could cause a little discomfort later on as I didn’t know this would happen or I don’t understand. Get these questions out now.
About the 10K at closing. The appraisal will determine the sale price of the property as well the percentage of appraised value the lender is willing to lend and the percentage you would be required to pay as a down payment.
If the sale price is below the appraised value the sale price become the determining factor as to what percentage the lender would be willing to lend and the percentage you would be required to pay as a down payment.
I hope this has been of some benefit to you, good luck.
“FIGHT ON”