Roanoke, TX · Member since 2015 · 7 posts · 0 votes
Unique situation. Our company has completed a fix and flip, found a retail buyer, have agreed to a sales price, and have a contract. Buyer is ready to move in as soon as they are financed. They wanted to go FHA but can't due to the 90-day rule. So they went with a CRA program with their bank. However, minimum credit score is 620. They have 615 due to past medical expenses. Buyer paid off credit card and a retail debt (all payments historically on time) in order to bring credit score up. However, bank can't/won't do a rapid rescore and said buyer has to wait 30 days for score to come up. Buyers and I both want to get this deal done now so they can move in within the next couple of weeks. House, price, contract, buyer and title company all in place. My plan is to seek a private lender that will buy the package deal and owner finance so that the buyers don't have to wait until mid-April to move in due to the snail's pace of the lenders. Any other suggestions?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
11y
Well, I assume this is in Texas. Installment contracts, contract for deeds are so restricted that they are avoided by attorneys, to the point of saying, we don't do CFDs in TX. L/Os are also limited. And, not only does Texas have predatory RE laws, even municipalities have predatory ordinances.
Next, you can't have a buyer "assume" a private loan without consent of that lender. You might sell that assumption with a pitch, but at 95%, you'll be so far off using your sale price to establish the LTV that your investor will be put at a high risk, overstated value, small down, an unknowing private lender, you're taking on the liability of putting that deal together and it's not good.
I'll skip other issues, but you can do a straight L/O for 180 days and sell under FHA. Take a lump sum as the option price, collect rents, don't give any rent credits (that is financing if applied to the purchase price) it gives your buyer time to increase credit scores and if FHA is doable, you're done.
I agree that govt. program loans will be looking very close, getting six months past the rehab may take you beyond the rehab cut off depending on the program, meaning, you'll be looking at the sale price to establish the LTV without complications.
However, what you are wanting to do is get your money out. That should be done as a refinance by you as the owner, note made by you, based on your costs, not what your sale contract is at, then allow your private lender a safer LTV. Then, you can sell the property on a Subject-To transaction. Give a special warranty deed to the buyer. Your loan is covered.
Then you have no maintenance issues under a lease, no rent credit issues, you didn't put a private lender at risk with some predatory accounting, your private lender is better secured by you, your buyer owns and covers the remaining amounts due you.
Since you rehabbed the house, you have Dodd-Frank issues seller financing to an owner occupant, you need to use a RMLO to originate the note in a Sub-To. Your private lender loan doesn't need a RMLO granting a loan to you.
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
11y
Lease option? 2 or 3 month lease then they have to buy or get the heck out. As long as you get a healthy option fee (that could later be credited to down payment) should mitigate a lot of the risk with "tenants" trashing your fresh rehab. Different states have different laws so make sure you are informed. One option anyway.
I wish you all the best Stacey, but while the buyer is ready and willing to buy, FHA underwriters are notorious for putting a microscope up your back side before funding a loan on a flip. Don't be surprised if they require you to provide them all your invoices/receipts for the materials you purchased or labor you paid for. I can't even remember all the nonsense they used to "require" of me until the time I simply quit selling flips to FHA / VA / USDA buyers.
If you wish to accept the risk, you can just attach a 60 to 90 day Buyer's Temporary Lease to the contract and amend the closing date accordingly.
Ozark , MO · Member since 2014 · 61 posts · 40 votes
11y
I agree with Brian. Lease option is the correct solution for the situation. Be careful though. I don't believe that you can accept rent and apply it as credit towards the purchase. The buyers will need to be aware of this so that they wont attack you later for not informing them.
Roanoke, TX · Member since 2015 · 7 posts · 0 votes
11y
Thanks all. My preference is to find a private lender that will basically buy the deal and then owner finance the buyers with the private lender being the new owner. I am wanting my cash out of the house so I can go buy a couple more. I own the house outright but don't want to wait to get the cash. And since I have a great buyer and the rehab is done and all is ready to go that it may be a great deal for the private lender.
Ozark , MO · Member since 2014 · 61 posts · 40 votes
11y
That is unfortunate. It will take time to find a private lender. When you do, the terms will most likely not be as favorable for the buyers. Sounds like an all around bad deal for the buyers.
To recap, they may be homeless while you try to find a private lender and, the terms most likely will not be as favorable.
Why not make a lot of money on rent and only buy one rehab house? You'd end up with a lot more money at the end of it all, AND you would be doing the right things for the buyers.
Going to message Bill about this one to see what he thinks.
Not sure why a buyer would pay a lot of money up front for a short-term lease/option when they could just rent a room at a long-term stay hotel room for a less than $2K per month and be better off financially than trying to do a more complicated lease/option. However, at a minimum, I would get a reasonable non-refundable option payment to hold the property for them if you're not considering leasing the home to them in the meantime.
As I cautioned before, betting on an FHA buyer who is unable to immediately perform can be a dangerous thing.
Roanoke, TX · Member since 2015 · 7 posts · 0 votes
11y
At this point we are past FHA because of the 90 day rule. I would lease option but I want my cash back out of it quickly so I can purchase other properties to flip.
I guess my confusion is that if someone could buy this and owner finance it at 7 or 8% interest rate, which the buyer is willing to pay, and they have the capital to tie up on a 30 year, why wouldn't they do it? If I have the capital to tie up I would do it myself.
Point one: quickly marketing for owner financing solution is not the easiest thing in the world
Point two: selling 100 cents on the dollar to investor nobody wants to do that
Point Three: getting 5% down on a lease then purchase is the most straightforward solution, and help the buyer get their Fico score higher so they can get a good mortgage through a credit improvement company; I use www.upgrademycredit.com
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
11y
Well, I assume this is in Texas. Installment contracts, contract for deeds are so restricted that they are avoided by attorneys, to the point of saying, we don't do CFDs in TX. L/Os are also limited. And, not only does Texas have predatory RE laws, even municipalities have predatory ordinances.
Next, you can't have a buyer "assume" a private loan without consent of that lender. You might sell that assumption with a pitch, but at 95%, you'll be so far off using your sale price to establish the LTV that your investor will be put at a high risk, overstated value, small down, an unknowing private lender, you're taking on the liability of putting that deal together and it's not good.
I'll skip other issues, but you can do a straight L/O for 180 days and sell under FHA. Take a lump sum as the option price, collect rents, don't give any rent credits (that is financing if applied to the purchase price) it gives your buyer time to increase credit scores and if FHA is doable, you're done.
I agree that govt. program loans will be looking very close, getting six months past the rehab may take you beyond the rehab cut off depending on the program, meaning, you'll be looking at the sale price to establish the LTV without complications.
However, what you are wanting to do is get your money out. That should be done as a refinance by you as the owner, note made by you, based on your costs, not what your sale contract is at, then allow your private lender a safer LTV. Then, you can sell the property on a Subject-To transaction. Give a special warranty deed to the buyer. Your loan is covered.
Then you have no maintenance issues under a lease, no rent credit issues, you didn't put a private lender at risk with some predatory accounting, your private lender is better secured by you, your buyer owns and covers the remaining amounts due you.
Since you rehabbed the house, you have Dodd-Frank issues seller financing to an owner occupant, you need to use a RMLO to originate the note in a Sub-To. Your private lender loan doesn't need a RMLO granting a loan to you.
Unique situation. Our company has completed a fix and flip, found a retail buyer, have agreed to a sales price, and have a contract. Buyer is ready to move in as soon as they are financed. They wanted to go FHA but can't due to the 90-day rule. So they went with a CRA program with their bank. However, minimum credit score is 620. They have 615 due to past medical expenses. Buyer paid off credit card and a retail debt (all payments historically on time) in order to bring credit score up. However, bank can't/won't do a rapid rescore and said buyer has to wait 30 days for score to come up. Buyers and I both want to get this deal done now so they can move in within the next couple of weeks. House, price, contract, buyer and title company all in place. My plan is to seek a private lender that will buy the package deal and owner finance so that the buyers don't have to wait until mid-April to move in due to the snail's pace of the lenders. Any other suggestions?
Stacey-
Any update on this situation? I'd be curious to hear how you worked it out.