mortgage loans prior to settlement on investment properties
Real Estate Investor · Philadelphia, PA · Member since 2014 · 10 posts · 0 votes
I am a new investor, I flipped 2 properties with my own money over the last year and a half. My 3rd purchase was my first buy and hold in October 2013, which I just rented out 4/1/14. The property is free and clear of any mortgages and loans. My problem is that I cannot access the equity in that home to move forward and buy other properties until it has been owned for a year (seasoning period). I talked to a rep from Quickenloans.com and they have a 6 month seasoning period. Does anyone have any feedback on this company or can you recommend a company that has less than 6 month seasoning period or no seasoning period at all. I live and invest in Philadelphia Pa. in zip codes 19134, 19125, 19137.
My second issue is getting a mortgage prior to settlement when I put in an all cash offer. If I don't get a mortgage prior to settlement, I must wait the seasoning time to access my cash. If property does not have a working kitchen and bathroom they will not mortgage it.
Thanks,
Joe
@Andrew S. is specifically referring to the Delayed Financing Exception for cash out refinancing for FannieMae loans. It is a fantastic tool. Call mortgage brokers and banks to find one that will do them. Some banks do not offer all the loan products that FannieMae allows.
I sent this web link to the contact person at various lenders to ask if they do cash out refi under that exception.
https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html
@Joe D'Occhio I have not dealt with Quickenloans myself but from what I hear they are reputable.
You can do what is called "delayed financing". In this case, you buy cash and then you have 6 months to close on the loan. The good thing about it is that you can get 70% LTV up to the full purchase price. So if you buy for 100K, improve the property and it is assessed say 150K, the you can get the whole 100K out with the loan. Many conventional lenders will do this.
@Andrew S. is specifically referring to the Delayed Financing Exception for cash out refinancing for FannieMae loans. It is a fantastic tool. Call mortgage brokers and banks to find one that will do them. Some banks do not offer all the loan products that FannieMae allows.
I sent this web link to the contact person at various lenders to ask if they do cash out refi under that exception.
https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html
Andrew S., lenders I talk to in the example you gave will only lend 70% of the original purchase price on investment properties. Should the 70% I can borrow be 70k not 100k?
Andrew & Doug, I have not heard of that lending option before, but I am interested in more information on that lending option. Thanks again guys.
I have a low 800 credit score and can't find local bank or mortgage company to give me a loan prior to settlement on a cash deal. I can't keep tying my own capital up as I need my capital for the rehab work and holding costs. I am a small fish buying 1 property at a time wishing to buy multiple properties. I hope my current issue helps others getting in to the business find answers also.
I am a new investor, I flipped 2 properties with my own money over the last year and a half. My 3rd purchase was my first buy and hold in October 2013, which I just rented out 4/1/14. The property is free and clear of any mortgages and loans. My problem is that I cannot access the equity in that home to move forward and buy other properties until it has been owned for a year (seasoning period). I talked to a rep from Quickenloans.com and they have a 6 month seasoning period. Does anyone have any feedback on this company or can you recommend a company that has less than 6 month seasoning period or no seasoning period at all. I live and invest in Philadelphia Pa. in zip codes 19134, 19125, 19137.
My second issue is getting a mortgage prior to settlement when I put in an all cash offer. If I don't get a mortgage prior to settlement, I must wait the seasoning time to access my cash. If property does not have a working kitchen and bathroom they will not mortgage it.
Thanks,
Joe
The case you are encountering is basic cash out guideline that requires a 6 month title seasoning period to cash out. Keep in mind that cashing out from months 6-12 is at the "lower of," acquisition or market value.
It is true, that in order to use "market value," to cash out you'll need to wait a full 12 months.
There is an exception to the above though. If you purchase a 1-4 unit with all cash you can within 6 months of acquisition acquire a cash out up to 70% of market or acquisition whichever is lower (if you have 1-4 financed properties, 65% LTV max if you have 5-10). This exception is called "delayed financing or delayed purchase."
So if you bought it in Oct 13 and rented it in April 1st that means you're past 6 months so you're past the point of being able to use delayed financing. Now you're subject to regular cash out guidelines or you can wait for Nov 1st (1 year and 1 day) to cash out at market value.
If I were you I would cash out at market value if your property has significant market appreciation since you acquired it.
Let me know if that helped or if you have any questions.
Albert Bui
your response was very helpful in understanding the terminology and time frames for such lending. Do you have any helpful information as to conventional type loans, (looking to stay away from hard money lending) when I sign an agreement of sale for an all cash offer, and get a mortgage prior to settlement for investment properties to hold or flip. What type of loans would help us as investors with this issue? Some of the properties that I find do not have working bath or kitchen or both. Is hard money lenders my only option? I purchase homes in Philadelphia Pa.
Thanks,
Joe
Since you've transitioned to holding onto properties it seems like the popular strategy is to pull the equity from the first rental (via home equity loan/credit line or cash out mortgage) and reinvest in the next purchase. That is a slow route but if done correctly you don't need your own additional cash for every deal.
Two other possible funding sources are a business line of credit (once you've built your business and develop a relationship with a lender), or find a private lender to provide acquisition funds.
In sum, I don't see a method of obtaining a conventional mortgage on investment properties in need of rehab.
There's a networking group meeting tonight so maybe someone there knows the solution....
Best of luck.
First, I would contact a local lender. I have a few contacts I can forward you. Quicken loans is not horrible, but using a local lender, especially for more non-traditional lending situations, just makes sense for a number of reasons. Once you have a business relationship with a lender, it is amazing what they can begin to offer you in terms of both insight and financial products.
Second, trying to conventionally finance a property without a kitchen or bathroom without a secondary construction loan is probably not going to happen. If you are trying to avoid hard money lenders, your best option is still a local lender who can do an acquisition rehab loan.
Best of luck,
Hilary
Brandon and Hilary,
Thank you for following up on my concerns. I have an appointment Saturday to speak with a wholesaling company that also has a sister company that lends hard money. Since I don't really want to go the way of hard money, maybe they will give me a better rate up front and also get on their e mail lists for properties in my area. Maybe hard money lending on the short term to flip might not be so bad... we will see... I need to get educated on all loan products and how they work with flips and buy and holds. This appointment will provide me with another source to find properties in my area and add to my contact list.
Thank you to everyone for your input. Your information was helpful and I will follow up with your options you have provided.
Hilary,
I would appreciate any contacts you might have.
Thanks,
Joe
Around late may of this year Fannie changed there guidelines to after 6 months you can use the Appraised value to refi with cash out, up to 75%. Previously if there was no lien on the property you would have to wait 12 months, and if there was a lien it was the lower of purchase price or market value after 6 months.
Joe I.
I will add that information to my financing folder, I appreciate your post.
It looks like my borrowing in the future will be with a hard money lender for my purchases of distressed properties since they close quickly and I don't have to worry about what shape the property is in as long as it makes sense. Now that I have a plan for financing properties now need to find properties in my farming area.
My tip as a beginner to other new investors is to keep your credit score up in the mid 700's or higher, watch your debt ratio's on your credit report for borrowing with banks (especially if you are not holding down a full time job).
I currently have 2 leased vehicles that are on my credit report showing over $50,000.00 owed on them even though it is a 2 year lease. I will be turning them back in January. I am going to buy 2 other used vehicles cash and then the only other revolving debt on my credit report will be my primary residence loan. (approx. $75k).
I only gave this example since my goal is to leave my full time job in 2 years or less (after accumulating a few more rental properties of course). And doing investing full time.
I called a bank to try to refinance my primary residence and gave them both situations of working my full time job and being self employed. When I had them calculate self employment they said I would not qualify even with my wife's job income and my 1 rental property income, due to the fact I was showing on my credit report debt of over $125k (mortgage and 2 car lease balances above).
I hope my road blocks for financing properties help other beginners. Again I am looking at future lending issues that might keep me from leaving my full time job in the future and still being able to qualify for fixed rate mortgages for my hold properties... just trying to get all my ducks in a row for my future goals.
Thanks
Joe M.