The Real Estate Bloggers

Knowing Your Home Buyer’s Loan Programs To Keep Your Investment On Track

Posted: 22 Dec 2010 04:32 AM PST

Real Estate investing is a tricky business if you don’t know what you’re doing. As such, from a newbie investor to a seasoned real estate professional it is imperative that you get yourself educated about not only the process that you’ll be going through in obtaining a property, but also the process that your potential homebuyers may have to go through to get their mortgage.

Seems like a lot to know (certainly was a long sentence), but it is your money and your financial future at stake, so you better be on top of things.

Case in point, there are new changes in how FHA looks at ownership seasoning in homes that they are looking to provide financing for. Knowing these changes could save you from some serious financial problems.

Here’s the scenario:

Let’s say that you’re a new real estate investor and you borrowed the money for your deal from a hard money lender ($80,000 – $90,000 for the property and $20,000 for rehab expenses). With a hard money loan on your back you will have several things working against you: time and money. To get into your deal you most likely spent 3-5 points in fees plus you are paying 12-15% and you face a 6 month deadline to payback your hard money loan.

Move forward two months:

You have finished rehabbing your newly acquired property into pristine condition such that you put on the market for sale. A couple of weeks later you get a purchase offer for $130,000 from a couple just out of college who intend to purchase your property using down payment assistance coupled with an FHA mortgage. Sounds good, but here’s where you really need to know what you’re doing.

In the more recent days of FHA financing there was a 90-day seasoning grace period that you had to wait out before you could sell your property to someone. FHA has recently changed this guideline to do away with the 90-day seasoning to allow financing to go to 120% of the property seller’s acquisition costs. With this as the case, the maximum loan amount that this couple can get using FHA is $120,000 – which is far short of your agreed purchase price.

Now, where you could really get into trouble – let’s just say that the loan officer working for your couple is not on top of their game and with mortgage processing times taking 30 days or more you could be half way through your 6 month balloon time frame before you get notice that your good deal borrower is not going to get their financing approved using FHA. If you had known about this requirement you might not have accepted their purchase offer knowing they were planning on using FHA financing.

Last call:

This scenario might be a little staged, but it should highlight the extreme importance of knowing the ins and outs of not only what you are faced with concerning your own financing but also knowing what’s happening in the regular residential financing market as it pertains to your homebuying client pool.

========

Joshua Dorkin is the founder and CEO of BiggerPockets.com, the premier real estate investing network and resource portal.

Thanks for reading this post. If you would like to see more articles like this, please come visit The Real Estate Bloggers. where it was originally published.

Knowing Your Home Buyer’s Loan Programs To Keep Your Investment On Track