Home sellers beware! Cash back deals are illegal
Home Sellers Beware: Cash back deals are Illegal
We’ve all seen the ads saying in effect: $10,000.00 cash back deal with full price.” or “Free car with full price.” These cash back deals can have many negative effects, not the least of which is to drive up prices for comparable sales. Studies have shown that after the boom, when houses returned to their original values, the crash was even more severe.
Cash Back Deals Qualify as Bank Fraud
In effect these cash back deals more than cross the line int bank fraud. These offers go beyond any little grey are that may exist for borrowers who get a little off the grid help from a relative or friend. Never forget that it is illegal to lie on a loan application.
A study by Ben-David an assistant director of finance at Ohio State University‘s Fisher College of Business showed that those who borrowed more than 80% of their home’s price suffered foreclosure rates close to 4% higher during the first year.
Why are cash back deals such a serious matter?
Because these transactions involve buyers and sellers transferring money without informing the lender, they expose the lender to extra risk. This makes them a form of mortgage fraud and therefore illegal. Hardly seems worth it, does it? When caught up in the home buying fever is not the time to leave your common sense at the door. If you have to go to such extremes as a cash back deal it is quite likely that you are simply not yet financially ready for a home. Step back. Lower your sights on the price of the mortgage you can afford.
Most importantly keep saving to increase your down payment.
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