125% Purchase Financing - Cashout at Closing. Your Comments?

Question

Has anyone tried doing 125% financing? I recently moved to a mortgage company, Ace Mortgage, and they introduced me to a product I was unfamiliar with. It is 125% financing. From what I have seen, it fits the niche for buyers who are looking to purchase a property below market value and cashout at closing, while still being in the green. Is this the perfect loan?

I thought this was a crazy loan when I looked at it, but it makes complete sense. Suprisngly, I found about 10 lenders who offer the program through our company.

Let me know if you have tried this program and what your thoughts are on it. I am about to do my first 125% for a buyer and this will be my first experience with this type of loan.

N/A N/A · Answer

It is a legal program offered by more then 1 lender. Also it is not a seller concession. Anything over 100% is paid by the lender to the borrower.

Jason Barnett · Answer

I understand what you are saying; please forgive me if it sounded like I was accusing you of doing something illegal.  I certainly didn't intend for it to come across that way.

My only point is that there are a lot of people that think it's no big deal to give a buyer a lot of cash back for "repairs" that the buyer never ends up doing.

http://www.flippingfrenzy.com/admin/uncategorized/cash-back-offers-at-closing-are-illegal/

If you offer these types of loans then there will eventually be someone that tries to pull a fast one over on you (why go for 80% LTV when you can get 125%).  Again: I am not suggesting that YOU would commit fraud... but there are scam artists that might try to take advantage of you.

Jason Barnett · Answer

I think you have to watch out for mortgage fraud from some unscrupulous sellers trying to "refund cash" to potential buyers.  Definitely not something that a young mortgage broker wants on their resume.