What are my financing options for buying homes from wholesaler?

Question

Let's say I have about $20,000-$30,000 saved up for a down payment on a home. I would like to buy rental property but since I have experience in building everything from the foundation up I'd like to get a deal on a rundown home from a wholesaler. What are my financing options? From what I've read an FHA would be a great deal to work out with the low down payment and interest rates, but the home would have to be in good shape right? Are there any programs that could help me out?

What are your thoughts and opinions on my situation? anything would help and just so you know I'm located in southern California.

Jo-Ann Lapin · Answer

Jorge hard/private money is an option for a property in not so good shape that you can value add to the subject. Something to consider.

Jon Holdman · Answer

Something to keep in mind is that lenders and wholesalers just don't work well together.  Lender's don't have any issue with the commissions RE agents collect on the sale, but often do have issues with the fees wholesalers want to get.  And can have issues with title.

Specifically, if the wholesaler is assigning the contract to you for a fee, the lender may use the original contract price as the "value" for the LTV calculation.  So, you will be out of pocket for the assignment fee.

When doing double closings, lenders may pull title shortly before closing.  They will discover the seller is not the current owner and nix the loan.  Some lenders may also have limits on financing a property until its owned by the seller for some period of time.

When buying from a wholesaler your best option is cash or hard money. HMLs are familiar with wholesaling and are generally OK with the process.  If you want to try with any sort of conventional funding, discuss what's happening with your broker and underwriter and be sure they know what's happening and are OK with it.  Even still, you may get an unpleasant surprise shortly before closing.

Logan Drew · Answer

Hi Jorge:

FHA loans are for owner occupied properties, but you can utilize the FHA 203k Rehab loan to buy a home that needs work.  Do you already own a primary residence?  Or will this be the only home you own?  Are you looking for an SFR rental?  Or a 2-4 unit property?