Buying with all cash? Then you can skip this one. (Or read on and learn what your competitors are facing.)
Lots of property – especially in the outer burbs – are being offered by private investors who acquired them in foreclosure or pre-foreclosure. The problem facing buyers is that many lenders are refusing to loan on such properties, UNLESS they have already been held by the flipper for at least 90 days. People will tell you that this is an FHA-only policy, but many lenders – including conventional financing – are observing it. (Trust me, I’ve hit that roadblock!)
Bank of America is the only major lender I know that doesn’t care if a flipped property has been seasoned for 90 days. But Wells Fargo is different. Like many lenders, Wells would cap their loans at a certain percentage above what the flipper paid for the property; of course, this formula nearly always produces a sum far below the loan amount specified on the purchase contract. (Fat chance the seller would agree to renegotiate such a reduction!)
I happen to applaud the policy. It’s meant to curb or discourage flipping…and, perhaps as an ancillary benefit, it stems the kind of bidding wars that drive prices absurdly high. After all, flippers were largely responsible for the inflated prices of yesteryear.
Why don’t investors just hold their properties for three months, then put them on the market? That should bring in more bidders, and higher prices, right? But in practice, investors prefer to offload their property ASAP…so they have the funds to invest in – and flip – more property.
