Wow.

Not if you don't want to spend time in the federal penitentiary. That is called mortgage fraud.

Just asking him would likely be enough to indict you for attempt to commit mortgage fraud.

Illegal

Fraud, of course. Besides, what's the advantage to the builder, who would now be reporting $10,000 more income to be taxed?

As a builder, I report all income, so no customer can ever have anything to hold over me in case of disagreement. As Mom used to say, "If you tell the truth, you don't have to worry about keeping your stories straight."

In any case, it's not how much you paid, but what the home is appraised for that, all other things being equal, decides how much of a mortgage loan you get.

The only benefit to the builder would be if he were to receive a kickback which is how that scheme is usually run . . .

Even if it were appropriate you should never have an agreement with a builder that is not "arms length." He's not your partner in this endeavor.

Woah!
I did not realize this was a huge deal!
I guess this won't be happening lol.
Well, thanks for the input!

Is it fraud in Canada? The OP is Canadian.

Why I don't like the idea ( and would not do this), I am going to look at it this way.

Here in the US, many businesses do this everyday, legally!

One prime example is car sales and cash rebates. Big home building companies do this. apartment rental companies do this. Retail stores do this.

They call it rebates.

Don't be ridiculous. A bigger loan isn't a "rebate"--it's $10,000 more that you took out.

Don't confuse a loan amount with the price someone pays for something. The loan amount has nothing to do with the price paid only what the bank is willing to loan on the value of the what is bought.

And don't confuse my take on this as tacit approval.

Is it fraud in Canada?

Criminal Code of Canada

"Fraud

380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,
     (a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars; or
     (b) is guilty
     (i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
     (ii) of an offence punishable on summary conviction,
     where the value of the subject-matter of the offence does not exceed five thousand dollars."

Of course, if all mortgage and property fraud were known and legally pursued, the ranks of real estate pros might be considerably thinned.

What about the home sales where the builder "pays" the closing costs? Isn't that just a way for the buyer to conserve cash? The builder isn't giving away the closing costs out of the goodness of his heart. He sets a higher price on the house to make up for the difference.

I think the poster could legitimately discuss this option with the builder, as long as the house appraises for the higher amount.

Of course, if all mortgage and property fraud were known and legally pursued, the ranks of real estate pros might be considerably thinned.

The difference deee is the misrepresentation to the bank which is what makes it fraud. Paying the closing costs doesn't involve a misrepresentation so no fraud. All paying the closing costs does is reduce the builder's profit.

I guess the OP is in Canada but in the U.S., if she were to do this, it would violate the federal bank fraud statute (assuming the bank was federally insured) and likely a state mortgage fraud statute (most states have those).

The way to do it is build the house, have it appraised, see what the appraisal is and that should determine if you can borrow more than it cost you to build. That is perfectly legal.

"What about the home sales where the builder "pays" the closing costs? Isn't that just a way for the buyer to conserve cash? The builder isn't giving away the closing costs out of the goodness of his heart. He sets a higher price on the house to make up for the difference.
I think the poster could legitimately discuss this option with the builder, as long as the house appraises for the higher amount."

You are very right. The only thing the bank is concerned with is the appraisal value and home much you want to borrow of that amount. As long as all paper work is filled out with-out any fraud it is not illegal.

All you need is enough equity at the end of the project to warrant the loan amount.

I have built two homes (one in Canada and one here in the US) and not once did the bank ask to see what I spent the money on, just that I had a finished home that appraised for more than my mortgage.

athensmom - I understand what fraud is. Most people in this thread were quick to give a verbal smack down to the OP. I was trying to help the guy out. He just needs a little steering towards the straight and narrow. I presented a hypothetical situation where the OP can save cash and NOT commit fraud.

The reality is that buyers and sellers play numbers games with purchase amounts all the time. Who hasn't done some version of this when they buy a house - "I'll pay this amount if you agree to fix the fence and throw in the fridge ...".

As long as the OP doesn't conceal an agreement with the builder AND the house appraises for the right amount he may be able to conserve his cash or get cash out of the deal.

It does seem to make sense that as long as the final amount is not more than the value appraised for the house than it should be legal.The only issue might be for the builders books? If they were to get audited, then perhaps seeing the bank pay the builder for $330,000, than the builder pay back the customer in "cash" $10,000 etc.. it might lead to some questions?

Often builders reimburse home owners for items they purchase for the home. Anything from carpet to cabinets.
A payment to the customer is not unusual.

The first thing you need to know is how the builder gets paid. In my builds I wrote all the checks and the bank just put cash draws into my account.

In some cases its a "sellers concession" essentially the selling price is written up to cover closing costs etc.

normally banks will limit the amount of it, and it is disclosed. The house has to appraise for that amount for it to work. and some banks aren't letting it happen anymore.

I'm assuming the OP is not trying to defraud, but trying to borrow some additonal money for closing costs/ landscaping etc.