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Hard Money Financing

What to Expect now That the FHA's 90-Day Waiver has Ended

by Eric Allee 21. January 2015 09:45

FHA 90 Day RuleFor the past 4 years, investors and home buyers benefited from the Federal Housing Administration’s (FHA’s) waiver of its 90-day flip rule that addressed a housing market which was flooded with foreclosures.  This waiver ended at midnight, December 31, 2014.  This means that, effective January 1, 2015, FHA has reverted to its former policy of not insuring a property loan where title was transferred within 90 day or less.  There are some exceptions to the FHA’s suspension of the 90-day rule.  They are as follows:

1. HUD properties under REO 

2. Sales by other federal agencies of REO properties

3. Sales of properties by non-profit organizations approved for resale by HUD 

4. Sales by state or federal financial institutions such as Fannie, Freddie or GSE

5. Sales of HUD properties where the President declares it a federal disaster area

What are not exempted from the rule are properties that were bought by investors and/or developers looking to do quick fixes and then flip the property.  Financing will still be available, but selling prices of the end product — rehabbed houses for moderate-income buyers — are almost certain to be more expensive and may have a detrimental impact on entry-level homebuyers.  The 90-day flipping restriction by FHA might also have some negative impact on some investors. However, it might be very minimal as many property flips are either cash purchases or financed with hard money loans, which enable investors to fast-track their property re-sales and maximize their profits.

 

Here are five points to consider with respect to the suspension of the 90-day waiver:

1.  An Inconvenience for Investors: The 90-day rule reduces the pool of homebuyers to those who are not using FHA financing.  Investors who are flipping at price ranges prime for FHA financing will definitely feel the negative impact of this rule.

2.  Missed Homeownership Opportunities for New Buyers: Some would-be FHA buyers will miss the opportunity for homeownership because investors will be more likely to work with conventional buyers who can be processed more quickly than the FHA rule allows.

3.  Less Available Housing Inventory: We are no longer experiencing the glut of home foreclosures that existed in 2010 when the FHA waiver was initially implemented.  With fewer available foreclosures, the suspension of the 90-day rule is not too significant. When FHA first implemented the waiver in 2010, bank-owned sales represented 44% of the entire California housing market (Source:  RealtyTrac), and by the last quarter of 2014, they comprise only 5.7% of all sales in the state (Source:  DQNews).

4.  Longer Selling Timeframes: Realistically, many investors easily take 30 to 60 days to flip a property regardless of the 90-day ruling status.  Once rehabbed, the property is commonly on the market for 30+ days.  Consequently, many homes will meet the time guidelines to qualify for FHA financing.  For example, in large metropolitan areas in 2014, housing flips in the third quarter of 2014 took an average of  185 days, slightly less than the 187 of the previous quarter (Source:  Yahoo! Finance and RealtyTrac 2014). 

5.  A Boost to Conventional Loan Products: The FHA’s suspension of the 90-day waiver will steer some buyers to use conventional financing.  More creative financing options are likely to emerge as buyers seek new ways to accomplish quick flips without FHA financing.

Vanguard Hard Money and its affiliates have provided this overview.  For a detailed explanation of the FHA’s ruling please consult the Federal regulations and/or legal counsel.

"Rehab Deal Analyzer"

by Eric Allee 27. January 2014 11:50

If you have not tried our free "Rehab Deal Analyzer," now is a good time. It's been completely updated to better calculate your profit/loss.Rehab Deal Analyzer

Bidding On Properties:
The Rehab Deal Analyzer is a great tool to use when comparing properties you are considering to buy.  Use it to help you determine which has the best potential of a higher return.

Rehab Deal Analyzer Instructions: (Click Below)

Property Information:

Purchase/Loan Information:

Holding Information:

Cash Expenditures:

Sales Information:

Gross Profit/Loss:

Once all information has been entered, you can print the spread sheet for your records.

Estimated Net Return:
Purchase price, financing cost, holding cost and cost of sale are factors you should review to compare different, potential net returns.

Need Assistance?
The Rehab Deal Analyzer is designed for you to complete on your own or with assistance from one of our rehab loan consultants.  Please call our office, and ask for Eric Allee at (800) 427-1441 or Email Info@VanguardHardMoney.com. He will be happy to help you complete the form and review different loan options available based upon your particular situation.

Copyright 2010 by Vanguard Hard Money

REO Investing in Todays Market

by Carla Palmer 23. November 2010 10:12

Potential profit making REO purchases still exist, but be careful!!

REO Investing in Todays Market

Even with the recent halting of a limited number of foreclosure proceedings by some of the biggest mortgage lenders in the nation, over fears of possible defects in their file documentation and foreclosure procedures, foreclosure action is heating up.

Meeting rooms at convention centers are becoming the sites of distressed-property auctions, with buyers competing for properties sometimes only based on an exterior photo.

Many first-time investors are jumping in, hoping to ride a wave of increasing home values.

And there is some good news on that front. According to the Zillow Home Value Index (www.zillow.com), home values in California, overall, rose in August of 2010, by .2% for the month, .6% for the quarter, and by 2.8% compared to August of 2009.

Some areas of California are showing modest-to-good growth compared to August 2009. Los Angeles Metro is up 3.3%, San Francisco, 2.7%, Santa Barbara Metro, 1.4%, San Jose and Ventura metros, 2.5%, and San Diego Metro, by a robust 5.3%.

But there are some areas of real weakness, too. Bakersfield is down 2.5%, Fresno, down 5%, San Luis Obispo, 2.8%, Sacramento, 2.4%, and Visalia, down by 10.5% from August 2009.

Riverside is holding steady, with 0% growth for the month, .1% for the quarter, and .1% compared to August of last year.

With the foreclosure machine now gearing up for full operations, an ongoing glut of distressed properties will continue to have a dampening effect on sale prices for some time to come, especially in the areas that have been hardest hit.

So what does all this mean for rehab property investors? Keep your expectations for home value growth at a moderate, realistic level. Research the heck out of market trends in the geographical areas you are looking to invest in. Be particular about the neighborhoods and properties in the immediate area. Lastly, realistically estimate potential net return after rehab, holding and resale.

 

- Carla Palmer

Need to raise your FICO score fast?

by Carla Palmer 26. September 2010 14:28

For many of us, our credit scores are not at the, shall we say, “altitude” they once were. The economic meltdown of the last few years has taken its toll.

Credit Scores

The Fair Isaac Corp, creator of the FICO score system, reports that more than 25% of all consumers with active credit files now fall below a 599 on the FICO scale, making them unacceptable to traditional lenders and less attractive to hard money lenders. However, equity is often deemed more important than credit scores when qualifying for a hard money loan.

If your credit score is limiting your opportunity to purchase or refinance property and you need to complete the transaction in less than 30 days, you might consider “rapid rescoring”. Most mortgage brokers can help you get started.

“Rapid rescorings” are performed by independent credit reporting companies, which use procedures approved by the major credit bureaus to make direct changes to your credit file.

Credit rescorers will link you, your creditors, and the national credit bureaus to correct errors and omissions that could be bringing down your score.

Rescorers can also analyze your credit file and, in some cases, make suggestions on spending that will quickly give your credit score a boost.

Most legitimate rescorings take about a week, and cost the borrower an average of $30 per account in your file. A complete rescoring runs $90 to $200 or more.

Most importantly, be realistic about what credit rescoring can do for your FICO score. Rescorings can make a significant difference, but the average increase is 25 to 32 points.

But that could be enough to allow you to qualify for a loan, if not from a traditional source, then from a hard money lender.

And ignore the “credit repair” schemes and scams that are out there, promising to improve your FICO score overnight. They can’t, and in some cases their methods may not even be legal.

- Carla Palmer

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Hard Money Financing

Hard Money After Repair Value Benefits

by Eric Allee 25. September 2010 00:14

Hard Money AppraiserA limited number of hard money lenders arrange and appraise rehab financing based upon "Future Value" of a property. Which is also called "After Repair Value" appraising. 
To clarify: Assume an investor/borrower has an opportunity to purchase a house for $125,000 and believes the "After Repair Value" is $175,000. If a loan is based upon the purchase price and the maximum Loan to Value (LTV) is 60%, the gross loan amount would be $75,000 ($125,000 times 60%). The down payment would be $50,000 plus cost.
If a loan is based upon "Future Market Value" and maximum Loan to Value is 60%, the gross loan amount would be $105,000 ($175,000 times 60%). The down payment would be $20,000 plus cost, which is $30,000 less than the scenario above. This also increases the potential yield on invested dollars. 
Assuming the investor is able to negotiate a lower purchase price of $120,000, potentially his down payment would be decreased from $20,000 to $15,000 ($120,000 less $105,000). 

This is why purchase of rehab properties using "Future Value" appraisals is so popular!

Prior to 2007 hard money lenders were lending as much as 75% of "Future Value". Today, because of the recession their guidelines are between 50% and 65% of "After Repair Value". Most lenders require a down payment of 10% to 20%.

The above example assumes the lender likes the property, borrower has decent credit and ability to make monthly payments. Hard money guidelines are not standardized and the example loan above may be approved by some hard money lenders and turned down by others.

Hard Money Financing is King!

by Eric Allee 24. August 2010 09:50

 

Hard money, financing vs. bank loans.

Hard Money vs Bank LoansWith limited availability of funding from banks and other institutions hard money for many borrowers is the only game in town. Hard money lenders are helping with the purchase of both residential and commercial properties. Popular among lenders are loans to finance the purchase of non-owner occupied houses for short term holding. Typical dollars loaned on these properties are $100,000 to $600,000. Buyers are purchasing the properties substantially below the current market value. After repair and fix up they are sold for potential short term profit. If annualized the return on invested dollars can be substantial.


Hard money, also called private money financing is also available for apartments and small commercial properties. Bank guidelines are more conservative for these loans. Documentation is very  extensive as banks pick and choose who to lend to. Fortunately, hard money lenders are in the market and are more liberal and aggressive than banks!

While hard money is available it is not as plentiful as it was prior to 2007. Many hard money lenders were burnt by the recession and have not returned to the market. Currently, there is a greater demand for loans than available money. As the real estate market improves private money lenders will return as they did after the seventies and nineties recessions.

It is more important than ever to present a complete and professional package to lenders when applying for financing. With the large volume of applications lenders have a tendency to put the poorly prepared packages at the bottom of the stack. Additionally, make honest full disclosure. Lenders will automatically turn down a loan if they feel the borrower is less than honest. 


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