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Last Updated: May 14th, 2012 - 22:24:01 |
To be successful flipping investment properties, there are three steps that must now be taken in light of the new Fannie Mae and Freddie Mac guideline.
First, you the prospective investor should shop around to find an experienced mortgage broker who specializes in working with sellers of investment real estate, especially with sellers who are flippers. Secondly, you should call and question the individual mortgage broker’s agent concerning the experience that you have heard their office extols. And third, you should follow up your call with a letter demanding preferential treatment and requesting a response letter returned to you within 3 business days. Further examining and becoming proficient in these three steps is mandatory to the success of your business in the investment properties’ world.
To begin with, let’s examine the second step, the phone call to the individual mortgage broker’s agent, to see why this call must ask the right questions. Primarily, these questions are to make sure that the mortgage broker’s agent works around the precedent set by the new guidelines. These are Fannie Mae and Freddie Mac’s guidelines that the lender should scrutinize how long you the seller, had seasoned (held) your property and guidelines that the lender must inspect how much cash you are generating from the sale.
What this means is that when you flip any property, judgment by the mortgage lender is nowadays made on how fair your return was on each investment.
Real estate investors all over reveal that excessive time and money buying and remodeling homes has been wasted by mortgage agents who have at first accepted offers from their pre-qualified buyers. But then, low and behold, 40 days or more into the wait, right before closing, the mortgage broker unexpectedly withdraws the home loan to the buyer simply because, you the seller, had the audacity to try and flip the property for short-term capital gain.
And on top of that, they have the nerve to say, don’t worry about it. “The house will receive the home loan once the investment property has continued as held by you for the bare minimum of 6 or sometimes 12 months. This guideline applies also for the portfolio broker mortgage, because most underwriters usually use Fannie Mae and Freddie Mac’s automated underwriting engine.
When an investment property seems to have used flipping to gain a good profit, then the automated engine spurts out the message: “The desktop Underwriter collateral assessment model indicates that the submitted property value estimate for this purchase transaction may be excessive for the local market. In addition, the risk characteristics for the transaction are consistent with loans Fannie Mae has historically found to contribute to inflated property valuations. The lender should carefully review the appraisal for this transaction.” Nevertheless, the problem is solvable.
Here’s your solution: Just before you accept any retail home mortgage offer, contact the mortgage brokerage to tell him right up front how you are flipping your property. Also, tell him the gap between your client’s purchase and the sale prices including the comps, which are the sales prices in the property’s surrounding area. In addition, tell him the duration of your seasoning period. Finally, tell the agent that you are familiar with all the new guidelines governing flipping and governing seasoning and that you want to make certain that whichever lending program your buyer is using does not decline his mortgage because of that guideline. Unfortunately, lots of mortgage brokers are not yet acquainted with this guideline, thus they may just unknowingly say, “do not worry.”
And finally, your last step, is to incorporate your counter-offer; that being, a requirement that your buyer’s mortgage broker, issue you a letter within 3 business days that specifically states how the mortgage brokerage will not decline the loan simply on the basis of your flipping or seasoning.
A lot of personal home loan lenders will not fulfill this request but keep trying. At least you will know you have a problem with your secured loan before you’ve squandered a month or more of your precious time with a real estate investment lender who doesn’t perform. Knowing the problem fast is a great benefit because then you still have enough time to speedily redirect your buyer to a different mortgage broker, one who is expert in portfolio home mortgage programs and a real estate franchise lender who is willing to take more time to fully evaluate files to close investment loans with flipping and seasoning issues. You want mortgage brokers whose actions leads to loan closings for you, thus getting the job done.
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