Originally posted by Thanh Nguyen:
@Bill Gulley Why do you say that we still can do lease option rent to own and only issues is apply rent toward purchase price. As I know that, Dodd Frank Act make buyers harder to get loan from the bank, meaning closing in the end of the term is mostly impossible. If we know it is hard to close in the end of the term and still do Wholesaling lease option, take money consideration and disappear, is that a right business to do?.
Misunderstood, if it's commercial, Dodd-Frank is not a concern.
No, it really doesn't making institutional lending "harder" just a little different. For example, qualifying ratios have been increasing making it easier to qualify, use to be 36% dti, now it's 43% and at a bank it can go higher.
Let me be clear, never apply rents toward a purchase price, you can search that here on BP and find several threads about the appraisal issues and what is allowed to be credited.
States do have exemptions for owners selling their owner occupied homes, pointed out in the link Bryan provided. Be careful about sources of information on the internet, but you'll see that on many sites, it's consistent from the CFPB sites, which is the best place to get information along with the Act (s). State sites will give you the specifics as to exemptions, don't read anything into what you read if it's not crystal clear.
While there can be exemptions, the lender will still need to comply with what we call prudent lending practices, there can be rules, like 43% dti ratios, but there can be compensating factors such as a borrower receiving future reliable income (might be rare) or debts falling off within 6 months. These are areas that are known to mortgage originators and loan officers, not so much with the public or even the best investors. Another example might be a co-signer not living in the property, in some cases such income or guarantees can be used, in conventional fannie mae lending, it's not.
While you can read a list of things you must have, name, ssn, income, contract with a sale price an a loan amount requested, you'll need more information and verification by certain documentation to actually justify making the loan.
So, reading a list as explained in the link provided, while correct, it won't put the average (or even above average) investor in a position to do underwriting.
Point is, to do those "exempt" seller financed notes, you, as a lender will be liable for the loan origination. You really shouldn't take on that liability if you are not trained in mortgage lending, you should still take the deal to a mortgage originator who is qualified to do the processing and origination.
Since balloon loans are out of the question now, you may want an incentive for the buyer to refinance (I know you're buying....) you can do an ARM, but I won't go there now, but the margin is 5% over several indexes that may apply.
Another issue is having any underlying mortgage that may have a balloon that a bank may make like a 180/60, meaning a 15 yr amortization with a 5 year balloon. If you sub-2 is done 2 years into that loan, the buyer will have an obligation to buy in 3 years or the lender will need to pay it off.
Seller financing is required to be fully amortized so that it can be paid off. The reason is that in the past seller financing was all about underwriting the loan to a point in the future where a borrower could qualify for new financing, this is even harder to do than simply approving someone for a loan under a loan program as they either qualify based on the rules that day or they don't. SF meant using a crystal ball looking into the future. To do that, the underwriter has to know the lending requirements to shoot for. This was obviously a problem as you had all kinds of people out there thinking they knew how to make a loan and they had a high failure rate as a group. While this still applies in many aspects, now that a loan is to be fully amortized, the Dodd-Frank issues actually make this aspect easier as to the tasks to overcome.
No, you certainly don't wholesale take money and step aside with a seller financed contract to be assumed. If you were instrumental in facilitating that deal you could be liable on many fronts.
The learning curve for these deals has gotten a lot longer, it's not as easy as any program or strategy claims on the surface. Seller financing is not dead, but it's more complicated for most everyone.
There is also the issue of collecting payments or loan servicing, to do that you'll need a license, so I'd suspect that these exempt loans that might be made will need to be immediately assigned to a loan servicer, there will be a fee.
And again, this is for those who are exempt, it won't really apply to an investor/dealer selling non-owner occupied homes, check you state laws. :)