Belcaro Real Estate Trends: Fixers

By
Real Estate Agent with Your Castle Real Estate

Loan Considerations for Fix & Flip / Short-Term Investors

 

 

Securing conventional financing on a fix & flip or short-term loan is not recommended.  Most conventional lenders sell off their mortgages to investors on the secondary market.  If the loan is paid off early (before six payments are made), the investor has not recovered their initial investment.  The investor will attempt to recover their loss from the lender, who will ultimately come after the loan originator.  The loan originator would then be obligated to pay back any premium paid out by the lender.  If such activity becomes habitual with the loan officer, the lender can cease doing business with them and their firm.

 

Furthermore, conventional loans require conventional appraisals.  The lender will require that the home is a) habitable in its present state b) in at least ‘average' condition and c) not in need of any repairs greater than 2% of the purchase price.  All three points can be challenging to overcome for investments properties, especially bank owned homes.  Consequently, many investors use private money, hard money, home equity lines of credit, cash or specialty investment lenders to avoid failing a conventional appraisal.   All of the aforementioned sources of funds can be worthwhile to pursue, but they are meant for short-term loans.  Hence, the borrower needs to have a clear exit strategy(ies) to avoid costly extension fees and holding costs.  Such loans carry higher interest rates and up-front fees due to their considerable risk.  They can be a great route to pursue; however, the investor better be prepared in case the home is not able to sell. 

 

Fix & flip investors should also be cognizant of title seasoning issues.  FHA guidelines require that a seller be on title for 90 days before a buyer can purchase the home with an FHA loan.  Most flips take longer than 90 days to renovate, market and actually close.   But, some deals need limited work and can be turned around quickly.  Ultimately, you will want to verify that the new buyer's lender understands the title guidelines of the lender being used.  Furthermore, a flip investor is going to list the remodeled home for significantly higher than what they had paid for it.  The lender providing financing to the buyer purchasing the renovated home will scrutinize the new appraisal to ensure the value is justified.  Lenders got burned in the past on property flipping schemes and are wary of substantial value increases in short periods of time.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the pants to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Topic:
Real Estate General Information
Location:
Colorado Denver County Denver Belcaro
Tags:
belcaro real estate
belcaro investment properties
belcaro foreclosures
belcaro fix and flip
belcaro rentals
belcaro real estate investi

Comments 0 New Comment

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the music-note to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the airplane to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Rainer
899

Rodolfo Canon

Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the house to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information