Conventional Financing For Wholesale Deals

This info is very important for both new and experienced wholesalers, AND buyers of fixer-uppers, to carefully read and understand. We learned it painfully, hopefully you won't have to :-)

Often times we are asked by investors about using conventional financing for their investor deals. In other words, they want to go through a bank or other similar lending institution to purchase a fixer-upper from us, or another wholesaler. The obvious advantage is that rates are cheaper, and the loan origination fees (many times referred to as "points") are both much less than "hard money" (loans from individuals or small institutions specifically for investor type properties, with rates ranging from 5 points and 15% interest to 10 points and 18% interest). There are, however, some obstacles to using conventional financing of which you must be aware.

First of all, these banking institutions will only loan on inhabitable, decent condition property. So if the property you are considering needs major repairs, forget this type of financing for the most part. Next is how you have structured the deal. Because of all of the recent frauds cases where banks have been burned, we have been unable to locate any conventional lenders willing to loan on a deal that has been "assigned" from the Buyer listed on the Purchase and Sales Agreement to a third party. They require that the Borrower be the Buyer named in the Agreement. And they absolutely will not fund the Assignment Fee.

You can get around this if you can live with either of these solutions:

1. The wholesaler re-writes the Agreement with the Seller listing the new Borrower as the Buyer. This solves the paperwork issue. The Buyer will still have to fund the Assignment fee with some other source of funds. The wholesaler in this scenario is not protected because none of the paperwork demonstrates his right to purchase the property, nor the assignment fee to be paid. A separate agreement would have to be established with all of the parties. You see how this can get very complicated and cumbersome. By the way, even if you have a cooperative Seller you can not just list the inflated price (original sales price plus Assignment Fee) on the Agreement with a stipulation that the Assignment Fee portion will be paid to the "Wholesaler" at closing, because then the wholesaler's fee will show up on the Seller's side of the Settlement Statement appearing as if he acted as a Real Estate Agent. Note: This may be OK if the "Wholesaler" is in fact an agent. They'd need to check with their Broker.

2. The wholesaler must become the owner of the property and in the chain of title. Then he can legitimately write an Agreement with the Buyer listing the full price of the property including the assignment fee. The wholesaler can accomplish this with a cooperative Seller using short term Seller financing, "subject to" financing, or a short term bridge loan from a home equity line or private lender (usually friend or family). As long as the loan-to-value (LTV) still fits their requirements, the banks will loan on the new purchase price ? thus funding the assignment fee.

The other item to keep in mind when considering conventional financing is that it is relatively slow. Many mortgage brokers will tell you that their loans will be ready to close within 10 days to 2 weeks from submission. The reality is that they can only guarantee that they will process the loan and get it to a lender within a short period of time. With the current rush for refinances, most lenders' underwriting departments are backlogged ? and applications can get stuck there for a week or more. They will also issue conditions that must be met, then submitted back to underwriting for final approval. Then add another couple of days for the loan package to be prepared and sent to the attorney.

To be safe, you should count on three weeks to a month for a loan to close. If it closes sooner, you'll be pleasantly surprised. If the deal doesn't allow for that much time, you may want to consider alternative funding sources so you don't lose it all because time has run out and the loan isn't ready.

Conventional financing does have a place in wholesale deals. We've closed several ourselves ? but it doesn't work in all cases. You need to understand the process, and what will fly, and what will just kill the deal.

Best of success & abundance,

Lou Castillo

FREE! Real Estate Investing Secrets To Earning $100,000 Your 1st Year! -- 11 Overlooked Real Estate Statregies That Will Turn Your Investing Business upside Down And On The Fast Track TO Success...Guranteed! Plus A Bonus Track With A Secret So Successful It Can Double Your Investing Income Overnight!

http://www.InvestorSuccessTactics.c om

---

Buying a Home with Zero Down Payment in Irvine, CA

Years ago, the only person that could buy a home... Read More

California Home Seller Disclosure Duties

Property Condition - Seller's What to Expect During the Inspection... Read More

Buying and Selling Distressed Houses for Maximum Profit (Update)

If you want to become a real estate investor, find... Read More

How to Show & Sell Your California Home

Seller's Showing Instructions1. When the agent arrives with the potential... Read More

Practical Advice for Finding Irish Castles for Sale

Have you ever wondered what it would be like to... Read More

Moldy Homes are a Great Investment

Have you seen this in your classifieds? -"Will pay $$$... Read More

Taxes When You Sell Your Home

What's the difference between death and taxes?Death doesn't change every... Read More

Use Targeted Decorating To Get A Higher Price For Your House

This article will show you how to sell your home... Read More

Buying a Home ? Dealing With Lender Letters

Most people who set out to buy a home, be... Read More

A Crash Course On The Payout Options Available To You When Selling A Mortgage Note

Okay, let's take a look at the typical payout options:Full... Read More

Cant Rent a Work Zone

So you've picked up your first (or third, or tenth)... Read More

Forclosure And The Durrett Rule

It's probably happened to you...Folks learn that you know something... Read More

Seller Objections To Lease Purchase

A large percentage of the mail we receive are from... Read More

Making it affordable: Nine tips for first time home buyers

It seems that everyone loves a good real estate story.... Read More

Mancos Real Estate

Real estate: availability and costIn 2000, the median home value... Read More

3 Mistakes to Absolutely Avoid in a 1031/TIC Exchange

We've all made bad decisions in the past. Don't you... Read More

Buying a Home -- Is a Home Inspection a Good Idea?

To avoid "buying a pig in a poke," buyers have... Read More

Family Feud with an Auction Deadline ? Adventures in Probate/ Estate Purchases

One of our investor students told us of an interesting... Read More

The Benefits of A Real Estate Agent 101

Buying and selling property is not as easy as you... Read More

Top Tips for Buying and Selling a Home

BuyersLooking for a home-Use Internet for overview of properties, communities,... Read More

Beat the Crowd when Investing in Real Estate

We all are thinking about it and some of us... Read More

Real Estate Marketing, Do You Use Direct Mail?

Prospecting for leads is by far the most difficult part... Read More

Condos Vs. Condo Hotels For Vacaton Home Ownership

Condo hotels, also called condotels, are a relatively new concept... Read More

Why Canadian Real Estate is Such Good Value

Real estate agents, Canadian citizens and foreign investors interested in... Read More

Why Are Mortgage Notes Discounted Anyway?

When real estate note brokers purchase partially paid notes, they... Read More

5 Factors of Selling a Home

There are five major factors to consider when selling a... Read More

You Wanna Get High With Me?

Being a home inspector is great. It's fun, it's interesting,... Read More

Home Equity ? Don?t Spend It on Risky Investments

The housing market has exploded in the last five years,... Read More

Writing on the Wall - Are REITs a Better Investment for You?

When I was a young child I had many annoying... Read More

Buying a House in Scotland

Buying a house in Scotland is slightly different from buying... Read More

Industrial Income Property Financing: Part 3 of 3

Financial ConcernsOf the three types of income property, industrial property... Read More

Buying Property in Bulgaria : How to Avoid Making A Bad Investment

Where is it possible to buy a property on your... Read More

Real Estate Investing - Books,TV Infomercials, and Seminars

Real estate investing has become popularized today because of real... Read More