FHA vs Fannie Mae

The FHA Anti flipping Rule and Fannie Mae’s New 3% Down Loan

* For Real Estate Investors*

I want to describe what these two different loan plans are and how the new rule affects real estate investors. Specifically, house flippers.

FHA’s Anti-Flipping Rule

The anti-flipping govern basically said today when a brand-new buyer, an FHA buyer, individual get any FHA loan, look at buying a property, that property has to have title seasoning of 90 days.
Title seasoning. Ninety days. That means that the vendor has owned the property for 90 days. Okay?
That is what this anti-flipping rule’s all about. The FHA buyer, if they’re going to get an FHA loan, the seller’s had to be on entitle for 90 days .
For the past four years, 2010 through 2014, this anti-flipping govern has been waived. What they were doing was promoting real estate investors to buy foreclosures, fix them up, and then sell them right away to re-stimulate what had become a pretty serious real estate explode of the bubble.
Starting January 1, 2015 this went into effect. If you exactly bought a property, and you’re going to fix it up, and you’re going be the owner for less that 90 days, and then an FHA buyer comes along, you have to wait until the 91 st day to sign that contract with that FHA buyer.
Most real estate investors cringe at this because they think it’s ridiculous. I agree.
What you paid for a property should have nothing to do with what you can resell the property for.
Even if you bought it truly inexpensive today, and you can sell it tomorrow for much more fund, that shouldn’t matter.
An appraisal is going to establish appraise , not how long you’ve owned it.
This entire anti-flipping principle is nonsensical, but it is what it is, and it’s in place.
Even trying to sell to an FHA buyer when you owned it less than 90 periods during this four year postponement of the present rules, was still a nightmare.

If you’re a real estate investor, buying houses, rehabbing them, and selling them, in most cases you’re buying those properties in areas that have restrictions.

These customers are going to have restrictions based on cost.
Limits in most cases, what? $300, in many part of the country, some parts $200. It depends on the domain.
What I mean is you’re not generally getting an FHA buyer on a half million dollar home. FHA buyers , not only is their limit generally in the scope where we do our flipping of houses, but likewise I did some experiments, and I think something in the range of 25% of all customers in recent times were FHA buyers. That’s a lot.

WHY FHA?

A lot of people have gotten FHA loans.

Why is that?
- Here’s the most important reason, in my opinion, 3.5% down payment.
- To me, this is 80% of the reason why people get FHA loans

Other Factors

People like FHA loans because some of their underwriting guidelines are a little bit relaxed
- For instance, if “youve had” student lends in deferment, In FHA underwriting guideline, you don’t have to put that in the debts/ income ratio.
- Almost every other lender’s like,” Wait a time. Just because the student laonsare in deferment, they’re going to have to pay them at some level. They actually include whatever those student lends in deferment, whatever that payment is, they include that in its external debt to income ratio.
- FHA has some flexibility there.
Another thing FHA is for a person that has never bought a residence before in their life and they have no credit, sometimes they’ll use utility statutes as a trade path.
FHA has loosened underwriting guidelines, but most importantly, it only expects 3.5% down.

What Does This Mean to Investors?

If you’re trying to throw together a flip fast then you got a problem here.
- You must wait 90 days.

What if you got the home under contract, and you find a buyer right away?

You don’t even own it yet. FHA purchasers will make that really difficult. Especially now that they have closed the window for January 1, 2015.

Fannie Mae

They now have just announced that they’re going to have a 3.5% loan opportunity, or option.
FHA is the Federal Housing Authority, they don’t actually give the lend. They guarantee the lend.
When a bank, like Bank of America, issue a lend that’s an FHA loan, FHA is the one securing it.
If that person doesn’t paying off lend, and it goes into default, and goes into foreclosure, it goes back to FHA.
It doesn’t go back to Bank of America. Bank of American gets their money back because it’s guaranteed by FHA.
By the way , none of such matters if you’re in Canada. This is all the United States based material.
If FHA is the guarantor, then technically the bank is simply constructing sure that it falls within their guidelines.

Fannie Mae Buys the Mortgage as a secondary Sell

What’s going to happen is the lend is going to get originated, and then they’re going to parcel it up with a cluster of other loans into one, and then they’re going to sell on the secondary mortgage to Fannie Mae.
Fannie Mae actually buys the loan. Then the bank typically continues to be the lend servicer.
Fannie Mae is now allowing for 3% down.
- That doesn’t mean the bank, who’s actually committing the money, is going to do that.
- It is necessary that if they create a loan and there’s only 3% down, then Fannie Mae will still buy it.
- That being has to be a first time home buyer

It’s nice, one doorway shut January 1st, and Fannie Mae, opens one up
it depends on which mortgage agent but from everything I can collect typically has about a 30 daylight title seasoning regulation which is not nearly as bad.
Thirty day title seasoning regulation for Fannie Mae.

What Kind of Loan is Your Potential Buyer Trying to Use?

If they’re using an FHA loan, and you’ve only owned the property 30 days, you know you can’t even try to sell it to them. You can’t even sign a contract with them until the 90th day
Fannie Mae, if you’ve owned it 30, I guess you’ve reached that period of time. You’re good to go. Since this is relatively new, that’s not going to be as established of a loan, so it may not follow through either.

When you are trying to sell a property, one of the most important questions to ask is:

What Kind of Loan is It?

If individual has 3.5%, they may have 5 %. What you may want to try to do, even if it’s an FHA buyer, is ask them would they be open to going conventional and using 5% down, and then you can compensate all the closing expenses. Perhaps the have 3.5% down, and they have another 1.5 saved up for closing expenses.

Five percentage is generally the cut-off for conventional. A heap of conventional loans are 5 %. Again, as I just mentioned … conventional … 3% down, Fannie Mae is considered like a conventional lend. You may even be able to go as low-grade as three, but at least five. You want to try and take borrowers conventional wherever possible.

Large-scale Tip

Anytime you schedule a property for sale, put it in the realtor statements that you require that whoever builds the offer to pre-qualify with your mortgage loan officer

Hopefully, that they are able to likewise help you. If they pre-qualify with that mortgage intermediary, they would say,” Yeah, they can go conventional here. Yeah, they’re an FHA buyer, but they are able to proceed conventional .”

You want to try and take these people conventional even if you have to pay the closing costs or something, or give them some motivation.
If you do, conventional got a lot easier , not only from an underwriting view, because it typically is a lot faster than FHA.
A heap easier to get a bargain done even if you have a low-spirited amount of titleseasoning, perhaps you’ve owned the property for 15 daylights, when the loan’s conventional.
Local banks, they don’t even care what the title seasoning is.
It’s really “the worlds largest” organizations that are selling on the secondary marketplace, do care a little bit.
If they’re going to sell to Fannie Mae, of course, they have to follow their guidelines.

When you’re selling a property that you’ve owned either a period, 30 daylights, you surely need to scrutinize what kind of loa they’re get. Ideally, you want them to go conventional.

Cash Buyer

If they’re an all money buyer, then that’s what you really require.

If it’s money, I even take a slouse. I won’t even sell my shares full cost. If they’re going to pay all money, it’s worth it to me to pay it …

If an FHA buyer comes along at $120, conventional’s at $110, and the all money at $105, all money at $105 is going the bargain. Again, each situation is a little different. If you’ve got to go to a mortgage intermediary, and they know for sure that the conventional buyer at $110 , no question, are going to close since they are got a perfect lend application, then that’s different.

That’s where, likewise, if you are a mortgage intermediary, or you’ve ever been one in the past, that’s a huge benefit in being a real estate investor. You can foresee which potential purchasers are most likely to actually open, and which ones their loans are going to fall apart.

Potential Problems

Most people go into buying a residence with all types of unbridled optimism that they’re going to get the lend, everything is going to work out well. We’re investors, we have to be somewhat pessimistic and got my eye on all the potential troubles that can occur.

Probably the major problem numerous investors deal with is when the buyer’s lend falls apart right before closing and they don’t get the lend.
You have to study these purchasers, and interrogation them, and talk to them or their buyer’s agent, if they’re represented by an agent, and find out what kind of lend they’re get. Talk to their mortgage intermediary.
Really find out that situation to make sure you don’t tie your property up to sell it and then they drag you down in 45 days.

The loan doesn’t go through because you haven’t owned it 90 dates. If it’s a Fannie Mae, you may have some obscure underwriting pattern. You’ve really got to do your homework upfront, before you agree to sell, and you countersign that render from that new buyer.

These are the changes that occurred the beginning of 2015.