Subto FHA problem
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votesIn short, you screwed him and his future it seems.
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58 Replies
- 1yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
Quote from @Bryan Maddex:
@Alex Hall Wow, it is almost fun to watch these posts go totally away from trying to help you into all kinds of different rabbit holes!
I have helped a lot of "subject to sellers" purchase their next home. Unfortunately, going from FHA on the departing residence to a ne FHA loan can almost never work for a few reasons.
Some good into for you to have (and your seller) and steps forward:
First: As you have learned, you cannot have two FHA loans unless you qualify for a couple of different exceptions. Most common is moving 100 miles away from the departing residence **for work**. Just moving when you can work from home does not fit this exception. Other most common factor: Family Size increases due to marriage or having a child.
Since FHA is not an option, i would advise that your seller needs to work on their credit score and savings to qualify for a conventional loan. If you did not do a "wrap mortgage" or "mirror mortgage" to help them create "notes receivable income", they may need a cosigner to have enough income to qualify for their next mortgage. I do not know of a way to go back and put a wrap mortgage in place post closing. You may not have done your subject to purchase in a way that protects their future ability to borrow. Not legal or tax advice, but I think every subject to purchase should include a wrap mortgage so that you create notes receivable income. I think this is one of the only ways to protect a sellers future ability to qualify for a mortgage.
For Freddie, i have not yet proven this with a transaction but saw this post by Matt in the Sub2 group of Paces.
Conventional (only Freddie Mac See Section 5102.4 of Freddie Selling guide). Freddie allows for 12 months payments, Executed HUD, Wrap documents (note and dot), Executed Warranty Deed to offset the mortgage. Fannie does Not once the home has sold. The Lender changes the loan to installment once they pull credit report for your seller, and omits it under 5102.4 guideline as paid by third party owner of prior home. Freddie accepts this.
Couple of options from here:
If you did not set up notes receivable, recognize that you may owe it to your seller and take the hit on a higher rate refi to help him. Much better than a legal filing or media attention.
Help him purchase another home Subject to that existing mortgage.
Encourage him to build credit to 680/700+, get 20% down, and have 9-12 months reserves and then he can get a No Income loan from one two different lenders.
FHA is for sure not going to be an option for him, last option is purchasing from an investor with owner financing, or lease to own program where he will not need traditional financing.What states do you lend in?
It was nice to see you actually tried to answer the question. I have resorted primarily just telling folks not to come out here on BP talking sub2 because those that do not like Pace Morby and those that do not like Sub2 will come out speaking against suff that they do not understand. (This includes character attacks as well.)
I think one of the reasons why people do not do a wrap mortgage or a mirror mortgage is because they feel like it will keep the original seller in the loop. Those that have not worked with Sub2 sellers do not understand how drama original sellers can be potentially.
The topic at hand is what is actually more of an issue than anything else Sub2 unless it's the insurance. And that includes any due on sale being called as well. It's just not that common even though that is one of the main things talked about.
The real issue that can and has reoccurred more than anything else IMO is that the original seller cannot just waltz out and get a new loan after their credit has improved. That's one of the reasons why I told the original poster about having his sellers sign a disclosure stating that the loan staying in their loan could affect their DTI and ability to get a new loan.If you're saying that a mirror mortgage will offset the DTI on the underlining loan of the seller that is very interesting. Somehow another that has not been pointed out or at least I have not noticed anyone talking about that before.
Thanks for your knowledge in this area and sharing.
- 1yBryan MaddexBusiness MemberLender · Charlotte, NC · Member since 2015 · 159 posts · 76 votes
Quote from @Joe S.:
What states do you lend in?Quote from @Bryan Maddex:
@Alex Hall Wow, it is almost fun to watch these posts go totally away from trying to help you into all kinds of different rabbit holes!
I have helped a lot of "subject to sellers" purchase their next home. Unfortunately, going from FHA on the departing residence to a ne FHA loan can almost never work for a few reasons.
Some good into for you to have (and your seller) and steps forward:
First: As you have learned, you cannot have two FHA loans unless you qualify for a couple of different exceptions. Most common is moving 100 miles away from the departing residence **for work**. Just moving when you can work from home does not fit this exception. Other most common factor: Family Size increases due to marriage or having a child.
Since FHA is not an option, i would advise that your seller needs to work on their credit score and savings to qualify for a conventional loan. If you did not do a "wrap mortgage" or "mirror mortgage" to help them create "notes receivable income", they may need a cosigner to have enough income to qualify for their next mortgage. I do not know of a way to go back and put a wrap mortgage in place post closing. You may not have done your subject to purchase in a way that protects their future ability to borrow. Not legal or tax advice, but I think every subject to purchase should include a wrap mortgage so that you create notes receivable income. I think this is one of the only ways to protect a sellers future ability to qualify for a mortgage.
For Freddie, i have not yet proven this with a transaction but saw this post by Matt in the Sub2 group of Paces.
Conventional (only Freddie Mac See Section 5102.4 of Freddie Selling guide). Freddie allows for 12 months payments, Executed HUD, Wrap documents (note and dot), Executed Warranty Deed to offset the mortgage. Fannie does Not once the home has sold. The Lender changes the loan to installment once they pull credit report for your seller, and omits it under 5102.4 guideline as paid by third party owner of prior home. Freddie accepts this.
Couple of options from here:
If you did not set up notes receivable, recognize that you may owe it to your seller and take the hit on a higher rate refi to help him. Much better than a legal filing or media attention.
Help him purchase another home Subject to that existing mortgage.
Encourage him to build credit to 680/700+, get 20% down, and have 9-12 months reserves and then he can get a No Income loan from one two different lenders.
FHA is for sure not going to be an option for him, last option is purchasing from an investor with owner financing, or lease to own program where he will not need traditional financing.Hey Joe! I'm personally licensed in 14 states and actively working on 8 more. My company is licensed in 31 states for owner occupied loans (check my profile) and I can lend in 45 states for business purposes loans (nonQM and dscr loans). Let me know if I can be helping you in any way!
- 1yBryan MaddexBusiness MemberLender · Charlotte, NC · Member since 2015 · 159 posts · 76 votes
Quote from @Joe S.:
Quote from @Bryan Maddex:
@Alex Hall Wow, it is almost fun to watch these posts go totally away from trying to help you into all kinds of different rabbit holes!
I have helped a lot of "subject to sellers" purchase their next home. Unfortunately, going from FHA on the departing residence to a ne FHA loan can almost never work for a few reasons.
Some good into for you to have (and your seller) and steps forward:
First: As you have learned, you cannot have two FHA loans unless you qualify for a couple of different exceptions. Most common is moving 100 miles away from the departing residence **for work**. Just moving when you can work from home does not fit this exception. Other most common factor: Family Size increases due to marriage or having a child.
Since FHA is not an option, i would advise that your seller needs to work on their credit score and savings to qualify for a conventional loan. If you did not do a "wrap mortgage" or "mirror mortgage" to help them create "notes receivable income", they may need a cosigner to have enough income to qualify for their next mortgage. I do not know of a way to go back and put a wrap mortgage in place post closing. You may not have done your subject to purchase in a way that protects their future ability to borrow. Not legal or tax advice, but I think every subject to purchase should include a wrap mortgage so that you create notes receivable income. I think this is one of the only ways to protect a sellers future ability to qualify for a mortgage.
For Freddie, i have not yet proven this with a transaction but saw this post by Matt in the Sub2 group of Paces.
Conventional (only Freddie Mac See Section 5102.4 of Freddie Selling guide). Freddie allows for 12 months payments, Executed HUD, Wrap documents (note and dot), Executed Warranty Deed to offset the mortgage. Fannie does Not once the home has sold. The Lender changes the loan to installment once they pull credit report for your seller, and omits it under 5102.4 guideline as paid by third party owner of prior home. Freddie accepts this.
Couple of options from here:
If you did not set up notes receivable, recognize that you may owe it to your seller and take the hit on a higher rate refi to help him. Much better than a legal filing or media attention.
Help him purchase another home Subject to that existing mortgage.
Encourage him to build credit to 680/700+, get 20% down, and have 9-12 months reserves and then he can get a No Income loan from one two different lenders.
FHA is for sure not going to be an option for him, last option is purchasing from an investor with owner financing, or lease to own program where he will not need traditional financing.What states do you lend in?
It was nice to see you actually tried to answer the question. I have resorted primarily just telling folks not to come out here on BP talking sub2 because those that do not like Pace Morby and those that do not like Sub2 will come out speaking against suff that they do not understand. (This includes character attacks as well.)
I think one of the reasons why people do not do a wrap mortgage or a mirror mortgage is because they feel like it will keep the original seller in the loop. Those that have not worked with Sub2 sellers do not understand how drama original sellers can be potentially.
The topic at hand is what is actually more of an issue than anything else Sub2 unless it's the insurance. And that includes any due on sale being called as well. It's just not that common even though that is one of the main things talked about.
The real issue that can and has reoccurred more than anything else IMO is that the original seller cannot just waltz out and get a new loan after their credit has improved. That's one of the reasons why I told the original poster about having his sellers sign a disclosure stating that the loan staying in their loan could affect their DTI and ability to get a new loan.If you're saying that a mirror mortgage will offset the DTI on the underlining loan of the seller that is very interesting. Somehow another that has not been pointed out or at least I have not noticed anyone talking about that before.
Thanks for your knowledge in this area and sharing.
Yeah, BP is full of bad info and flame wars. It's amazing the bad info given by a lot of lenders who think they know what they are talking about, or Real Estate agents who give lending advice that is not accurate.
Wra mmortgages, while they may bring along a seller for the ride, is essentially the only way to create income for the seller to offset the debt.
Th iincome needs to be reported on credit, has to have been received for 12 months and likely to continue for the next 3 years in order to count as income.
I've not underwriting tested the Freddie guideline I quoted, but am eagar to for the right buyer who sold subject to.
I oit's too much drama to do a wrap, it's not mutually beneficial to all parties and not a true deal (from my perspective anyway).
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Quinn Olivarez:
If I were the original seller, I would tell the bank I sold the house so that I could get the ball rolling on getting it out of this sub to agreement that is probably not enforceable in most jurisdictions. I have had previous requests for help with this situation, and that's the advice I consistently offer. It is fairly easy to prove that the sleazy and less experienced sub to people had ill intent, they keep a fairly detailed record of their doings in a Facebook group and are easy to find elsewhere. Posting this here in hopes that other sub to 'sellers' see this and take action against these predators.
”getting it out of this sub to agreement that is probably not enforceable in most jurisdictions”
“It is fairly easy to prove that the sleazy and less experienced sub to people had ill intent”
Can you sight specific legal cases that back up the above assertions? Or is this just what your fantasy?
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1y
Quote from @Don Konipol:
Quote from @Quinn Olivarez:
If I were the original seller, I would tell the bank I sold the house so that I could get the ball rolling on getting it out of this sub to agreement that is probably not enforceable in most jurisdictions. I have had previous requests for help with this situation, and that's the advice I consistently offer. It is fairly easy to prove that the sleazy and less experienced sub to people had ill intent, they keep a fairly detailed record of their doings in a Facebook group and are easy to find elsewhere. Posting this here in hopes that other sub to 'sellers' see this and take action against these predators.
”getting it out of this sub to agreement that is probably not enforceable in most jurisdictions”
“It is fairly easy to prove that the sleazy and less experienced sub to people had ill intent”
Can you sight specific legal cases that back up the above assertions? Or is this just what your fantasy?
.
@Quinn Olivarez: "”getting it out of this sub to agreement that is probably not enforceable in most jurisdictions”(Spoken nicely) I hope I misunderstand your meaning. And since this is a written medium, I can't see your expressions.
@Don Konipol: Asks a very good and subtle question, "Can you sight specific legal cases that back up the above assertions?"
I'd love to see your answer. Case law supports him.
I don't even know where to begin with a comment like that, other than I suggest you start building a legal defense fund, to deal with that mistaken approach to contracts.It isn't so much that you are totally wrong (again said nicely) , but let's start with the real issue. If a warranty deed has been filed or even a memorandum of sale or a lis pendens, it makes getting clear title virtually impossible without the co-operation of the one who filed or having assistance from an attorney and maybe a long, costly, lawsuit.
It's a very big deal.
- 1yJake AndronicoBusiness MemberRealtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votesUnder the assumption he'd be willing to live in it for at least 1 year. Yes, I'm a Realtor :)
Quote from @James Hamling:
Quote from @Jake Andronico:
Can you not assume the loan?
Assume an FHA loan to non-occupy and use for rental real estate....
Your a Realtor, right????
Wasn't advocating mortgage fraud. - 1yScott AllenBusiness MemberReal Estate Agent · Columbus, OH · Member since 2020 · 449 posts · 471 votes
@Alex Hall It sounds like you are going to have to teach the seller how to find a sub2 deal if he is ever going to be able to buy a house now. Just give him the details of what he needs to look for specifically.
Other options - refi into DSCR, connect seller with a credit repair company so he can get a conventional loan eventually, or sell
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