Delayed financing-Settlement Charges to Buyer

[Jonathan Paul Shortt]

For those of you who have successfully pulled all capital out of a BRRRR using delayed financing, how did you present the rehab to title to get it added as settlement to buyer? I am set to close Tuesday and have not heard back from title if they will add it for me yet.

Thanks in advance!

[Julee Felsman]

Hi @Jonathan Paul Shortt,

Your best bet would be to pay the title company for an "escrow holdback". Having them hold the funds you plan to use for the rehab and disburse them to you, will put them on the settlement statement. 

This will still be an underwriter judgement call, as the guidelines for delayed financing don't specifically refer to renovations. The relevant part of Fannie's talks about "initial investment":

Freddie Mac's refer to "original purchase price and related closing costs": 

IMHO, Fannie's leave more room to maneuver/argue than Freddie's. In either case, I think it's grey area enough that I'd want to run a draft of your closing statement by an underwriter for feedback -- and I have a hunch they may want to call Fannie and/or Freddie directly for a ruling. 

If you DM me a closing disclosure, I'd be happy to do this for you. Leveraging the creative corners of agency guidelines is my Favorite Thing.

Another angle that I think would have higher odds of success: 

Increase the price and have the seller put the renovation funds into an escrow holdback with title. Your seller will probably want to run this idea by their CPA to makes sure it doesn't create tax issues for them (could get weird if they're doing a 1031) 

I'd still want to run this up the flagpole with an underwriter in advance. I could see an underwriter wanting really airtight documentation that all of the funds in the holdback went to renovations -- not into your pocket. Having escrow pay invoices to contractors would be a really clean way of doing this -- easy if you've got one GC doing the work... complicated if you are a DIY remodeler. 

Hope that helps!

Julee