If you buy a home and the seller (or developer) rebates you money back on closing, you must disclose this to your lender.
If you don’t, it can be considered mortgage fraud.
It doesn’t matter if the seller calls it a “rebate,” “renovation credit,” “loan to purchaser” or whatever.
Moreover, you can’t always expect to hide behind lawyer-client privilege to keep the lender from finding out about it.
Here’s an interesting story by Move Smartly that discusses the issue further: Buying Inducements Must Be Disclosed
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Last modified: April 28, 2014
I cannot understand it.
What a lender has to do with the “rebate”? Why does he care? Why is it his business?
can we get a response to Vlad’s question?
what does it have to do with the lender?
it changes the LTV of the deal. If you say the cost of the home is 100K, and they lend 75%, you get a loan of 75K. if there is a rebate of 25K, then really, you only payed 75K for the home, ergo, the lender went to 100% LTV without knowing it. Obviously, 100% LTV is alot riskyer for the lender than 75% LTV, and it may even effect their insurance on the deal.
This is why its the lenders business, and why they are willing to prosecute perople who don’t disclose the rebate.
Because rebates, incentives and credits must be discounted from the purchase price. Same as a rebate you would get buying a car or computer.
in your example if the client disclosed to the lender they are getting a 25 k rebate, they would have to effectively pay for the 25k themselves with interest.
what type of borrower would actually go for these rebates, if they lose (in a way)?
Sounds like a fair and reasonable thing to me.
i wouldn’t consider it a rebate if i had to pay for it. not only pay it back but pay interest on top of it, there’s no way I’d go for this ‘rebate’
I would think that developers don’t want lenders knowing about this, it would hurt their sales. rebates are suppose to help, in this case they don’t.
@ Josh – so what would stop people from buying a $400,000 property for $600,000 with a $200,000 “rebate”? It would add a lot of cost to the system if every deal required an appraisal.
The lender’s collateral is the property and the property alone.
I think Josh is missing the point. In the above example of a 75% LTV loan with a 100K purchase and a 25K rebate, if disclosed, the lender would lend 75% LTV on the REBATED amount, for a loan of 56.25K.
The lender doesn’t make any intrest off the rebate, they just don;t want to make 100% loans that look on paper like 75% loans…
seems fair enough to me.
totally missed the point, my bad. I was thinking something else. so the lender would subtract the rebate from the value (100 – 25 = 75k)
then the 75% ltv on 75k is 56250.
I understand now, makes sense.