Can You Fix-n-Flip a Fannie Mae Homepath Property?

Question

I have a question for you smart ones of Biggerpockets.

Fannie Mae has this program called Homepath.

They're selling CHEAP but the main issue is they impose a DEED RESTRICTION so much so that you are NOT ALLOWED to sell the house within 12 months of purchase.

One solution we have around this issue is RENT TO OWN - buy the house, fix it and then sell it rent to own. It will take 12-18 months for the title to transfer since the tenant/buyer will take about that time for him or her to qualify for a mortgage.

However, today, I encountered a Homepath house that is ideal for FIX-N-FLIP. My sweet spot for rent to own in my market is the ARV range of $150K to $250K. Above $250K, I get less tenant/buyers but more buyers. The house I am looking at right now has an ARV of $450K but I can get it cheap - only $250K (it needs about $20K repairs).

I know and have heard of selling the LLC but this really does not work for end buyers who need a traditional mortgage.

I am stumped.

Any creative work around this deed restriction of Fannie Mae Homepath?

Thanks in advance BP Nation!

Greg H. · Answer

Account Closed

The deed restriction for investor purchases is only 90 days where you cannot sell the property for more than 120% of the purchase price during that period.  The 1 year restriction is for owner occupants only

Nnabuenyi Anigbogu · Answer

Account Closed stated. You cannot sell or encumber the property for more than 120% of the purchase for 90 days.  Since my flip is going to take about 4 months i figured it is worth it. If i finish it in less time i can still market it but i can't sell till those 3 months are over.

Also from the hard money side we had to be creative because the PP + rehab was over the 120%. What we did was set it up as two loans. The first loan was for the PP and a chunk of the rehab. The second loan will be in 3 months and will be a refinance where they give me the rest of the rehab money. That way the property is never encumbered over Fannies limits.

J Scott · Answer

What Greg said above...

Also note that there will be a preliminary period during which only owner occupants can bid.   If it doesn't sell during that period, it opens to Investors.

Wendell De Guzman · Answer

No  - not shady. Just wondering if people have figured a creative and legal workaround. Also, holding for 12 months just to wait for a buyer (and not getting paid any return on that money) is not good for my investors' money.

Joshua D. · Answer

Account Closed

I know you are like a million times smarter than me but... Why not just hold it for the 12 months.  if there is 150k+ in equity after rehab, it would be worth it to hold and resell. Especially for a "Mr. Money Bags"like yourself :)

Its seems a bit shady to try to skirt around the intent of the rules. Don't you think?

Just my thoughts

Wayne Brooks · Answer

To Be clear: the fannie resale 90 day restriction, is 90 days until Deed transfer, to the buyer, not purchase contract date.  The restriction when selling to a FHA buyer, regardless of the property, is 90 days from your purchase/closing, until Execution of the FHA buyer's purchase contract.

J Scott · Answer

Sell OR encumber for more than 120% of the purchase price.  In other words, you can't get a loan for purchase and rehab over 120% of the purchase price where the house is collateralized.

Julia Dugger · Answer

Wendell, the issue becomes how and when you place the offer:

- if you place an offer during the FirstLook period (typically the first 20 days a property is actively listed) and identify yourself as an owner occupant, you will be required to sign a binding document that asserts that you will live in the property as an owner occ for at least 12 months. If you misrepresent your intent, you're liable for a $10K penalty and Fannie Mae will pursue judgment on these

- if you place an offer after the First Look period and identify yourself as an investor (or an owner occ, for that matter) then you're bound by the deed restriction will prohibits you from selling within 90 days for more than 120% of purchase price. After 90 days, you're free to sell at whatever price you can get.

Account Closed · Answer

Account Closed closed on a Homepath home at end of November. Can also confirm that the resale restriction was only at 120% for 90 days.

Nik S. · Answer

Account Closed

I bought a homeopath Fannie Mae property 90 days ago.

As I was rehabbing it, I marketed it with my agent (her word of mouth to her potential buyers). She showed potential buyers while I was doing the Reno.

The agent found buyers & I basically got "under contract" on the 91st day, hence the 90 day deed restriction.

Can You Fix-n-Flip a Fannie Mae Homepath Property?

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