First check w/ your lender to see if FHA will allow this. But, come on guys!! If the seller pays a buyer's down payment and their closing costs, since they don't have the funds available, wouldn't you expect to pay him back that $10,000 some way? The remaining $2,000 of the $12,000 from the appraisal is the only real discrepancy in the price. Plus, the seller/builder is willing to hold a soft second mortgage which means wait to get the rest of his equity, and wait to get this in this market?? Someone should be kissing this builder on the cheek for being finance savvy and doing what it takes to get homes sold! Then, go in and tell the builder a 5 year balloon at 8% won't work--negotiate it.
If I were representing you in this transaction, I would be fighting for the BUILDER to make up the difference. NOT YOU.
If it quacks like a duck, flies like a duck----IT's probably a duck!
There are a couple 0f issues here:
Do you want to pay more than a house is worth?
If you agree to pay more than appraisal, that's in effect what you would be doing.
I'm not a lawyer, but at closing, your lender will ask you to sign an agreement that states that there are no side deals . But, if you have this note with the seller , you will be in violation of that agreement.
I would be very cautious about proceeding on this deal as it is laid out in your explanation. If I could be of any assistance, give me a call at 440-487-2193 or e-mail me at firstname.lastname@example.org.
I would seek the advice of an attorney. It sounds like the builder is doing a seller carry-back for a second mortgage to help you purchase the home - but all this must be disclosed to the bank to see if they allow that to happen and how it changes your ability to buy the home since now your payment will be higher.
First, you must disclose the terms and payment of any private loan to your lender. So the $12,000 loan will increase your qualifying debt ratios.
Second, the loan from the builder to you to enable you to purchase the home will violate at least one FHA guideline even without a second lien from the builder. The loan itself will be considered an "inducement to the sale" which means it must be included in the maximum 6% of purchase price allowed for seller contributions to buyer's closing costs.
Third, the underwriter may feel uncomfortable with the whole deal