How To Get Around Seasoning?
A deal I am working on right now:
1) Seller is about 1.5 months away from the courthouse steps. It is a good deal so an option is not possible. THe seller wants closure.
2) House has an ARV of 140K to 145K.
3) House needs about 6K in work, 6K in Uhaul money to the seller, and 4K to catch up the arrearage.
4) I can take the house subject to the existing mortgage which is 87K (includes the 4k in arrears)
5) This gives me a net cost of 103K plus holding costs (3 months at 780.36 per month), attorney's fees (roughly $800), marketing ($500). Total costs about 105-106K.
6) I go and retail the house quickly for 135-139K. How will the buyer get the loan? My understanding is that the bank will see that I just took over the property a couple of months ago for $10.00. Will say it is not seasoned, and deny the loan to anyone but Donald Trump.
Please tell me there is another way. My general strategy is buy and hold via lease option for at least a year so this is normally not a problem. On this one I would just like to turn a quick profit and pay off some credit cards.
There must be a way to get around the seasoning issue. Please help!
JohnCl
That seasoning rule is an FHA rule. If your borrower uses a conventional loan - not an FHA - you're fine.
lassitermarketing,
Please provide the names of some of the banks that do non-seasoned loans.
JohnCl
try Washington Mutual
Most conventional financing doesn't have the seasoning issue.
If FL, you can take the property into a Land Trust, such as the SMITH FAMILY TRUST. So it went from Larry Smith to the SMITH FAMILY TRUST. From a lenders point of view it looks like estate planning, not a change of ownership.
I bought a house in Oct and sold it in Nov. The buyers used Chase. It is a simple call to the lender to ask if they have any seasoning requirements. That of course does not mean that they might not look at it harder by questioning the appraisal and wanting to ask you questions - although that did not happen to me on that house but did on another. So take before and after pictures of your property and keep all receipts to justify your profit, just in case.
Brenda
John,
I am a mortage broker in Texas. Seasoning requirements are becoming more popular in underwriting guidelines in most of our banks out there. Especially with the foreclosure rate being so high. You need to ask your broker to find you a lender that does not ask for a 12 month chain of title (seasoning).
Hey John,
Assuming that your method of acquisition involves hard money, AND that you are asking about financing for the retail sale to an owner-occupant, there is yet another way to go.
You can bypass the seasoning issue altogether by working with a note broker who deals directly with note buyers.
What you do is fix your house up, get it so it is ready to retail, and then sell it FSBO (you could pay a few hundred bucks to have it listed on MLS, or even pay a Buyer's Agent realtor 3% if they bring you a buyer) by advertising "Owner Will Finance".
You will get a lot of buyers calling you. You pre-screen them, pick the best one, then you use a simultaneous or double closing to 1. take back a 1st lien note on the property then 5 minutes later before the deal closes you 2. sell that new note to a note buyer, at a slight discount.
This allows you to price the property at full FMV, to offer one-stop shopping (property and financing) to your home buyers, and allows you to move the property quickly (anywhere from 2-4 weeks usually).
Although every situation is different with many different variables involved, you can expect a note buyer to purchase that note for between 88-93% on an owner occupied, single family, stick built construction home.
This is a great way to make money and move properties IF you are coming up against seasoning problems, and you have some equity to play with in the property. And of course, you have to have motivation (rehabbers are pretty motivated to stop the bleeding in terms of holding costs) and the buyer has to be motivated. Not every buyer likes to pay all the junk fees, underwriting fees, etc. with conventional loans or brokered loans, even if they have great credit.
Hope this helps. Dave
Dave,
That's great advice. Thank You!
JohnCl
Quote: You will get a lot of buyers calling you. You pre-screen them, pick the best one, then you use a simultaneous or double closing to 1. take back a 1st lien note on the property then 5 minutes later before the deal closes you 2. sell that new note to a note buyer, at a slight discount.
What is a "slight discount"? Could you give a money example.
Brenda
Brenda,
Read the whole post again, slower. The answer you're looking for is there.