Real Estate Consultant · Minneapolis · Member since 2009 · 60 posts · 8 votes
Purchased a fixer and someone offered me $15,000 more to buy it as is. Since I just closed on the property - how can we get around FHA's 90 day seasoning requirement.
I just did this on another property - bought an REO and sold it immediately. My buyer used Wells Fargo conventional loan and they were reluctant to finance the deal. Wells would only finance up to the amount I paid for the REO - requiring my buyer to come up with additonal down payment.
If your flipping or rehabbing and reselling in less then 90 days how do you finance the resale - without using hard money?
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
Originally posted by Tim B:
Reluctant to do a short lease - buyer moves into property prior to closing then nit picking property and backing out of purchase.
I have the same concerns about doing this, but you have to decide if this is a better or worse alternative to waiting 90 days...
Btw, I highly recommend checking with the title company to make sure that they record the deed quickly...I had a situation this week where I found out the title company screwed up, and still hasn't recorded the deed after more than 2 months.
I have an offer on the property, but it's FHA, and the 90 day clock STILL hasn't started ticking...
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
The 90-Day Rule only comes into play if your buyer is financing with an FHA loan. If he is using a conventional loan (or VA loan), there is no 90-day seasoning required.
Btw, for FHA, the 90-day rule starts when the deed is recorded, NOT when the property is purchased.
Real Estate Investor · Tampa Bay, FL · Member since 2009 · 180 posts · 17 votes
17y
Good idea Jason.
It's true that FNMA (Fannie Mae) does not require title seasoning.
Some lenders smell fraud even when there isn't any, when it comes to flipping.
It's very simple actually. Just make sure that your buyer uses a mortgage broker. The mortgage broker he uses must have lenders that he works with that require no title seasoning.
It's also true that if your borrower must go FHA to purchase, you will have to wait the 90 days, and in some cases even 180 days. If that is the case, go with Jasons advice and write a lease option.
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
17y
How does a short lease work for a fixer property?
By defination the fixer would have to be fixed up which takes XXX amount of time before someone can recieve a certificate of occupancy for the property?
In other words, how can he lease the property to someone when it cant be legally occupied?
Real Estate Investor · San Antonio, TX · Member since 2008 · 19 posts · 3 votes
17y
If you mean that you are wholesaleing a property just do a double close or use and/or assigns...you can get around FHA seasoning by putting 10% down. Like it was stated in the early posts...Deed needs to be recorded...so just do a double close if you are quick turning the contract...if you fix it up then do a short lease...I have done many double closes on REO props..
Real Estate Consultant · Minneapolis · Member since 2009 · 60 posts · 8 votes
17y
Your right that the 90 days starts after the deed is recorded and our county is so backed up it takes 30 days for the new owner to show on the records.
Reluctant to do a short lease - buyer moves into property prior to closing then nit picking property and backing out of purchase.
I'm not wholesaling but selling to end users and have not had a buyer in place to do a double close. Several times in multiple offers - I pay cash - get a better price on the REO - then resell to one of the other losing bidders.
Even conventional financing lenders are very suspicious of flipping - we had to write a letter to Wells Fargo declaring we had not purchased the property with the intention of flipping it - I need to find other lenders willing to finance quick resales.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
Originally posted by Tim B:
Reluctant to do a short lease - buyer moves into property prior to closing then nit picking property and backing out of purchase.
I have the same concerns about doing this, but you have to decide if this is a better or worse alternative to waiting 90 days...
Btw, I highly recommend checking with the title company to make sure that they record the deed quickly...I had a situation this week where I found out the title company screwed up, and still hasn't recorded the deed after more than 2 months.
I have an offer on the property, but it's FHA, and the 90 day clock STILL hasn't started ticking...
Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
17y
I am just elaborating on Jason’s idea as I think out loud. It has been frustrating to “flip†in this market with the 90 day seasoning, and average 60 day FHA escrow. (I know it is supposed to be 45 days, but they are so backed up they can’t close in 45 days.)That is a lot of holding time in a declining market. I have thought about having my mortgage broker of choice also pre-qualify the buyer for my “flip†and if he says the buyer is solid, and then do an inter-occupancy lease agreement while waiting the 90 days. That way they get the house and I get paid while I hold the property. I thought the same as Tim, that if the buyer doesn’t perform, now you have an eviction on top of everything. We are a talented bunch of people, there must be a creative way we can come up with to outsmart this weird market.
Real Estate Investor · Tampa Bay, FL · Member since 2009 · 180 posts · 17 votes
17y
Could we get a Real Estate Attorney to do some sort of escrow thingy, where they put a large amount into an account, and if they dont perform they lose XX dollars per day?
We used to use a Post Closing Occupancy agreements that got people out of houses quickly. But this is different.
IF they are FHA I know they have to put 3.5% down. So maybe have them put up their down payment money in escrow, with a hard core agreement that you will get that money if they fail to close?
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
Michael,
This is exactly what I'm doing with one of my houses now. I have a short-term lease purchase agreement (5 months), that requires the buyers to put most of the down-payment into escrow before they move into the property, and it's non-refundable should they fail to purchase the property.
They are also paying an extra $500/month above market rent, and that $500/month is credited towards the closing as well (and is non-refundable if they don't close).
The only way they get their money back is if they fail to qualify for a loan due to circumstances beyond their control, such as if the credit markets get tighter and suddenly they need a higher credit score to qualify.
The only risk here is that they do more damage to the property than their non-refundable deposits can cover, and then don't close on the deal. But, hopefully good screening can weed out those type of buyers.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
Another option that was presented to me today is to seek out local banks that can provide long-term fixed financing that rivals FHA, but without the FHA rules. Then set your buyers up with the bank to get around the ridiculous FHA issues.
I'm going to be visiting a bunch of local banks this coming week to see what I can find out...
Real Estate Investor · Tampa Bay, FL · Member since 2009 · 180 posts · 17 votes
17y
If your buyer qualifies for FNMA financing, you will be okay. The seasoning guidelines that FHA has will not apply.
Of course you will still have to worry about what the underwriter thinks of the overall file. With some lenders there will be problems regardless of FNMA guidelines.
I know that is ridiculous considering that the lender is selling the loan to FNMA anyway, and merely servicing the debt.
My guess is we are talking about you actually purchasing the house, and later selling it under the 90 day FHA guidelines.
If we are discussing double closings, then that could bring up an issue in your choice of title company or closing agent.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
Originally posted by Michael Culler:
If your buyer qualifies for FNMA financing, you will be okay. The seasoning guidelines that FHA has will not apply.
But, you're unlikely to find 3% down-payment terms with FNMA financing, which is something that many of today's buyers need in order to qualify for a loan.
That's where small banks and portfolio loans come in...
Real Estate Consultant · Minneapolis · Member since 2009 · 60 posts · 8 votes
17y
The reality is with a short term lease if the buyer wants out - they can get out with their deposit. To get them out of the house and resell it - the buyer needs to sign a cancellational agreement - which usually means returning their deposit. The big deposit is more a psychological commitment.
There must be some lenders willing to finance these flips, once renovated - will check with my local investor group for ideas. That 3% down FHA is important and I guess we just have to figure a 90 day holding period into the cost of during these flips.
The market is turning and there are plenty of end user buyers for fixed up REOs - they don't want to buy a fixer. Lots of REOs to buy and flip - we just need the financing to resell.
Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
17y
It is now 3.5% down for FHA buyers. That extra 1/2% should prevent a lot of future foreclosures! The reason for figuring out a way to get someone into the "flip" right away is to avoid having a vacant house sitting vunerable for 4-6 months after rehab is finished while paying holding costs on the property during this time. I am finishing rehabs 20-30 days from close of escrow. So I still have two months to hold the property until I meet my 90 rule. Then assuming I immediatley have a buyer at the end of the 90 days I will still have a 60 day escrow ( I know FHA is SUPPOSED to be 45 days, but they are closer to 60 days right now) So the LEAST amount of time I will hold a property is 4 months, but it seems to be averaging closer to 6 months. FHA requires the seller to sign an addendum that states that the buyer will get their earnest money back if the escrow doesn't close. So there would need to be a seperate agreement that would hold their earnest money until close of FHA escrow. So a lease option-type agreement would be neded, but I wonder if a lease option agreement would conflict with the FHA purchase agreement and be null and void.
Real Estate Investor · Dallas, OR · Member since 2009 · 74 posts · 1 vote
17y
Let me add my frustration with these ridiculous rules! How does this help get foreclosures off the banks books and get people in affordable housing if investors are being forced to hold properties for so long? While sitting on my rehabs waiting for the end users financing to come through I've had the gas lines stolen out of one of the houses! This was after the plumbing was stolen a few months ago after the 5th prospective buyers financing fell through! Now the current buyer wants me to include new appliances in the house before closing! Yeah, right!
So what's the answer? Purchase a flip but wait 60 days before you even begin the rehab. And then immediately put it up for sale with the caveat that you won't be able to sign a contract for another 30 days? Arghhhh!
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Really want to know the answer Larry? IT DOESN'T!!!!
The fact remains that it was the banks who made the decision to make each and every loan to any Tom Dick and Harry (plus the loans they approved for each of their pet Dogs) and know implement rules in an attempt to reduce fraud and unethical behavior?!? Look in the mirror lenders, you created the problem and are now adding to it by the hinderences of your BS rules.
I have had only minor success with this strategy and have now stopped it all together. I am much better served concentrating on strategies that do not hav ethe incredible hinderences of working with end buyers (FHA lending and their BS rules).
My new strategy and system is coming along very well and will soon take the place of several others. :D
Real Estate Consultant · Minneapolis · Member since 2009 · 60 posts · 8 votes
17y
My frustration is - there is a growing demand for renovated houses in the Minneapolis market and requiring 90 day seasoning just slows down the process. Buyers are getting a sense that we have reached a price bottom and are out buying again. Very few buyers want to take on a rundown REO. There is a definte need for rehabbers to fixup REOs.
Investor · Lake Jackson, TX · Member since 2008 · 54 posts · 8 votes
17y
I have a suggestion, but I don't know all the details about this process. Could you owner finance the property with a good down payment and sell the note to another investor to get your money out.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
17y
Originally posted by Cory L.:
I have a suggestion, but I don't know all the details about this process. Could you owner finance the property with a good down payment and sell the note to another investor to get your money out.
Sure, but in today's market, you're unlikely to get more than 30-50% of the value of the note for a typical buyer.
So, if you can sell at a high enough premium, this will work; otherwise, you just won't be able to make any money doing this.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Unless I am mistaken and things have really changed, note buyers do not require a 50% discount. The last note buyer I worked with paid 90% of the note value (10% discount).
I would venture to guess the property must meet certain criteria, but all in all 50% discount seems very, very steep.
Either way, yes you could owner finance and then sell the note, but you will be having to sell at some type of discount and would have to have that in your spread at purchase. It is hard enough to find deals in good areas with enough room without having this added expense, but it is certainly an option.
Involved In Real Estate · Anderson, SC · Member since 2008 · 350 posts · 70 votes
17y
The various idiotic rules the banks use make no sense. Think of how the community surrounding the last home you flipped benefitted from what you did. Think about all the vacant homes bringing down values and the potential buyers that need homes. Think about the economic contribution to you local community you make by rehabbing: the money going to local contractors, to the lumber yard, the paint store, etc.
Investors and flippers are the cure for the housing crisis.
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
17y
Mark, you need to balance the fact that a huge problem in many of the bubble markets were speculative investors. And those 90 day FHA rules are in place because of creative investors that screwed over lenders with straw buyers and corrupt appraisers.
I hate the 90 day rule just as much as the next investor. I had to set up a 2 month closing to get around it on a house I have now. I offered the leasing idea with a significant deposit on another house I had but the buyer didn't go for the idea.
I agree with Will on the note discounting. I've never seen a 70% mark down or even a 50% mark down. If anyone's interested in selling their notes for that I may be interested. :D
I work with an investor who uses this as his primary exit strategy on his rehabs. He's currently selling them to a local note buyer for about a 10% discount.