Can I wholesale to a conventional loan buyer?

Question

My first solo wholesale property is an ok deal.It’s a 4 bed / 2 bath house in great shape in Largo, FL so the market is pretty good. I posted my ads and have several people ready to go look at it this week. The real estate agents (2) told me that the buyers are pre-approved and can close right away.

My problem is that somebody else told me that this won’t work because conventional lenders won’t do a double close or assignment and that I have to have owned the property for at least 6 months.

I’m not sure if I should call the realtors and tell them that it needs to be sold for cash or let it ride and see what happens. Because of the price and condition of the house the buyers seem to be very motivated. I don’t want to blow it. What would you do?

Thanks in advance for your advice,

Sam Williams

[email protected]

727-537-6150

Ted Akers · Answer

@Sam Williams There are two issues related to mortgage lenders if your end-buyer is using a mortgage. Neither FHA nor conventional lenders will allow their client to purchase via assignment, so you have to take title in order to sale the property to your buyer. The second issue is one of "title seasoning". FHA does not currently have a title seasoning requirement (they used to) but your sale contract has to be dated after you are in title and the appraisal also cannot be ordered before that time, so you will need to go into title for 1-4 weeks (however long it takes that lender to underwrite and close). If your resale price is greater than 20% of your purchase price two appraisals will be required, which typically increases the time line to close. I have funded a same-day FHA deal but that was a few years ago and have not seen one happen since then. If the buyer is using a conventional mortgage most all lenders have a 90 day title seasoning requirement (some will be longer such as the 6 month time line you heard of). A portfolio lender that underwrites their own deals may not have title seasoning, but they are somewhat rare after the crash in 2008. There is one exception you want to be aware of because most loan officers do not know that it is in their underwriting guidelines, but if by chance your buyer is putting 20% down the title seasoning requirement can be waived. It is possible to close this scenario the same day but it will be a challenge finding a lender that can or will jump through that hoop.Your greatest chance of success is to fully disclose up front and make sure the lender understands that the property is being purchased and immediately resold. I suggest not taking the response from a loan officer but insisting that the scenario be presented to an underwriter.Cash is King if you can find that buyer. Good luck.

Tonia Hill · Answer

@Sam Williams Ok, If it is a private sale then, you shouldn't have any problems ( I say that lightly, because you are dealing with real estate and people ;0) ) . If your spread is large enough that you want to do a double close, there are a couple of ways. Do you have an inspection clause with the seller, if not will the seller allow you to conduct an inspection? Does the seller know that you are wholesaling this to other buyers? If people are buying conventional, they are usually required to do an inspection. If this is ok with your seller or in your PA, then it should not be a problem. Also, if something comes up on the inspection report, who is responsible to fix it, you or the seller? Once that is all settled and you start your closing, if you have purchase agreement with the seller that closing is at place of your choosing, title company or your attorney's office, then tell/offer your buyer that you prefer closing to be at your destination. The right title company/attorney will know to close this deal. If it is not possible to a double close at the same destination or same time, you may have to look at transactional funding. You can close with the seller in the morning and with the buyer in the afternoon, or in a few days after. Who said it can't be done?! These are only a few suggestions, there are several more. Hope it works out well for you @Sam Williams

Tonia Hill · Answer

@Chaz Reid Thank you for sharing that info with @Sam Williams if your are new, this is very valuable info so people know how to communicate to each other. :0)

Chaz Reid · Answer

@Sam Williams , you have to tag people by putting a "@" then start typing their name until it pops up under the typing area, then click on them. So with your reply post, @Tonia Hill , @David Sicherman , nor @Wayne Brooks could see it unless they were following this post. But you should receive some feedback from them now. Good luck on your endeavor and nice question by the way...

David Sicherman · Answer

Yes, if they have a conventional loan the bank might not allow it, you have to find that out from their bank/agent first. Also the issue with trying to wholesale to a retail buyer with conventional bank financing is you start getting into inspections and back and forth with things that need to be fixed on the house before it gets approved for the loan. As a wholesaler you can't do these things.

Tonia Hill · Answer

@Sam WilliamsA couple of questions,Is this a foreclosure? Is there a deed restriction that states you can not sell for a certain amount over the purchase price or a certain time frame? Knowing your restrictions in the deed can help you answer this questions. If this is a private sell, this should not be a problem. How big is your wholesale spread? If it is large enough, you would want to do a double close. If it is small enough, an assignment of contract?Don't ever let someone tell you something can't be done, especially if they have never done it. There are always ways.

Account Closed · Answer

@Ted Akers Just to clarify, assuming I find a conventional buyer, I still wouldn't be able to double close due to a 90 day title seasoning requirement correct? I was under the impression this would only apply under FHA guidelines. I was thinking about using transactional funding for a potential deal and double close to a conventional buyer. You also mentioned there is a possibility a portfolio lender would waive this requirement assuming the end buyer puts down 20 % correct?

Ted Akers · Answer

Hello @David OldenburgTitle Seasoning and ownership are the same thing. At the time of that post FHA had suspended their 90 day title seasoning requirement for about three years; but it is once again in place, and yes the new buyer cannot even enter a contract to purchase until day 91 after the investor/flipper has been in title (owned the property). If a flipper were to find a buyer using an FHA mortgage the flippers original purchase contract, wherever it came from, cannot be assigned to either an FHA or a conventional mortgage buyer. So, he has to go into title and execute a standard purchase and sale agreement when mortgages are required for the end-buyer.

David Oldenburg · Answer

@Ted Akers Hi, I am an FHA lender in CA, and I wanted to get more clarification on what you wrote above...""The second issue is one of "title seasoning". FHA does not currently have a title seasoning requirement (they used to) but your sale contract has to be dated after you are in title and the appraisal also cannot be ordered before that time, so you will need to go into title for 1-4 weeks (however long it takes that lender to underwrite and close). ""Is there a difference between "Title Seasoning" and "Ownership of the home"? In my area, once a home is purchased, it cannot be resold for 90 days with FHA. They won't even allow you to enter into the contract to sell for the home for 90 days, meaning, it really takes about 120 days to close with an FHA buyer. I was having a hard time following what you were trying to explain and how to do it. Maybe we are talking about 2 different things? If I am correct, you are trying to explain how someone can have a home under contract, assign that contract to an FHA buyer and close, or is this something else. I'm just trying to figure out of there is a loophole or someway to buy a house (or have it under contract) and immediately sell it to an FHA buyer, as I have always wanted to be able to do it!

Sam Williams · Answer

@Ted Akers thank you. I may have run aground with this one. I'm still new and without much of a buyers list. I have a good deal (I think) but I'm still learning about being "seen and heard". I sure am learning a lot though!