Using credit cards for down payments

I have a credit card with a high limit that’s offering one of those 0% cash advance deals, interest free until January 2016. Would a bank have a problem if I used that cash advance to help make the down payment on a park loan?(Obviously this begs the question if this is a good idea financially. But that’s another issue.)

Ask for forgiveness, not permission

Dean,It’s probably not a good idea to apply that quote to banks. They should not be left in the dark on something like this.

Agreed, I don’t want to do something like this if it’d be considered bank fraud… on the other hand, credit card debt is unsecured so would be lower in priority than the mortgage, so why would the bank have an issue? I’d think it’s like getting a second mortgage. In theory…?

Frank did this with his first park I believe. He can probably give you the best answer.

I did just that to start my billboard company, which predates my first park by 14 years. Dave did that to buy his first park, but the deal was seller carry, I believe, so there were no bank issues. If the deal is seller carry, I can’t see how it would be a problem. If it was bank debt, you might want to research further the implications of doing that. Where you might get in trouble is your certified financial statement would probably lack the debt, since you would not do it until right before closing, right? That might be bank fraud, but I’m not sure since your personal financial statement reflects your status only at the time you issue it.

If you did it after your financial statement, you wouldn’t be able to show enough for the down payment.  If you did it before the financial statement, your credit score could take a massive hit and potentially disqualify you for the loan.  I would not discuss this plan necessarily with your bank, but you might do it with a bank you don’t intend to use.  Loan officers are usually very knowledgeable in the art of manipulating disputes and credit uses to fit their underwriting guidelines.  

Hmm… just a thought, if I did it right before my financial statement, and did the financial statement right before applying for the loan, I’d get the cash and would be able to show enough for the down payment, but there’s usually a good lag before it shows up on my credit report (I’d think the statement cycle would have to close, at the very least). Of course, the financial statement would show the debt so it doesn’t matter too much if my credit score’s hit…I’m likely going to have a co-borrower on the park so that will help with the debt-showing-up issue.

That’s true as well.  They may also pull your score prior to your financial statement.  At the least, I would personally write letters to all three credit bureaus and dispute any negative information and any inquiry on your report.  Valid or not.  You would be surprised what they’ll drop off of there if you pester them enough.  It might give enough of a boost to offset the drop of maxing out a high limit card.Another solution is that if your co-investor can cover the amount you plan on using the card for, you can just write him a check from your card at closing and avoid the whole mess.

That last idea with the co-investor is brilliant in its simplicity and would work pretty well!I’m lucky enough to not have any black marks on my credit report, deserved or not. I have seen the score drop in the past when I took out a 0% offer but that’s to be expected.

i did not say it was a good idea, in his post he said it may not be financially correct. For the record, I would never use a cc for any financial emergency needs, i have a fund specifically for the " what ifs" .in the end, i was making a joke. 

Dean,“Ask for forgiveness, not permission” is an important concept, and I’ve tried to teach that to my daughter to use only in emergency cases (like getting a cab ride to safety if you have no money in an emergency), but I’m glad you pointed out that you put that on as a joke, as bankers have no sense of humor in such cases. But it is a great quote, and one that I dispense regularly. As a side note, do you seriously think the IRS lost all those emails, or might they be taking this quote to heart?

Dean, I know the general adage of don’t use your credit card, but this is 0% interest (with a one-time 3% fee up-front) for a year and a half, and then 11.99% variable APR thereafter. Consider that most unsecured subordinated loans for investments get up to 8%-10% or so anyway (with shorter amortization periods), and it’s not that bad of a deal. It’s certainly cheaper than having to raise more equity capital.Here’s another idea I’m playing with: You’re allowed to take your money out of your IRA with no tax consequences as long as you put it back in within 60-days (a rollover). This can be done once a year. So, take money out of the IRA for the down payment, 59 days later use the credit card cash advance to pay back your IRA, a year and a half later use the IRA to pay off the credit card, 59 days later use a new cash advance to pay back your IRA, rinse wash repeat. You’re paying 3% yearly (assuming these 0% offers keep coming, which they seem to be) and the IRS doesn’t have any grounds to bust the IRA on self-dealing.Frank, with the IRS emails, you may find this article interesting: http://www.bloombergview.com/articles/2014-06-19/an-irs-conspiracy-not-likely-yet

As everyone knows I am not political – I don’t trust either party or politicians in general. But I am an avid hater of hypocrisy. If these were corporate emails from a large business under indictment, there’s no way these excuses – or attitudes – would be tolerated.

I think the IRA idea is a much safer solution while the banks are doing their diligence on you as a borrower.  The subsequent cash-advance to repay the IRA makes sense to me as well.  I think rinse-repeat on that is a little risky, but it seems to make sense as well.  On the IRS side of things, I’ve been working for the Federal Government for over a decade.  In both direct and in contract roles.  Their hypocrisy and nonsense never cease to amaze me.  From Iraq/Afghanistan to Benghazi to NSA spying to “lost” IRS email they just continuously show they don’t have the public’s best interest in mind. Not sure what else they could do to become more untrustworthy than they already are, but I’m sure they’ll come up with something! 

frank … i learned a while back that politics are off base on discussions boards, but it does raise another old saying i have used with my kids … if it walks like a duck, and quaks like a duck, probably is a duck … everyone knows what is happening here 

Agreed.

Well, I have had people swear the Casino would be the answer for the above situation but for reality never put your credit at risk. It is easy to destroy and difficult to rebuilt… Some people have rich relatives and friends–I was just a poor kid raised on a dairy farm where we NEVER KNEW WE WERE POOR SINCE ALL MY FRIEND WERE ALSO POOR FARM KIDS. Lots of money can also be a curse especial if our children were given a silver spoon without work ethics.

I would not do this.  It doesn’t pass the “smell test” to steer clear of bank fraud to me, since you will likely be signing something that says “I have provided the bank with a true and accurate picture of my financial situation” and you probably won’t be able to get a loan if you disclose this.  Typically (not always, but usually) a bank will not permit a second mortgage or any lower-priority claim on the asset.  Why?  Probably because they want to be sure that if the asset loses value, there is still something to salvage and motivate you to work hard to keep.  If you’re going to default on the bank loan, the bank figures you’re going to default on your credit card loan too.  So you might say “the heck with it, bank, take the asset.”  The bank now has to worry about fending off your other creditors (credit card company), or (potentially) has an asset with a second mortgage on it, which makes it harder to sell &c.  Personal residences work a little differently, since you are motivated to keep your home even if you’re underwater, but if an income-producing property is losing money, you’re probably going to give that right back to the bank if you don’t think you can turn it around to get back your equity at stake.  The bank doesn’t want you to have so little “skin” in the game that you give up when faced with adversity.You can go to a banker and explain your situation, but I doubt they’d lend enough if you don’t have equity you are putting in.  And if you’re using credit card debt to finance the purchase, the bank probably won’t consider that equity.  I think they will outright ask you “where did you get the money for the down payment?” but even if they don’t, I’m fairly sure there will be something you are asked to sign which will be a problem if you have credit card debt you’re putting into the deal.Of course, whatever is truly “allowed” or “legal” will depend on the exact documents and the exact bank, but that’s my 2 cents.Brandon@Sandell