Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
efete1

HUD rules

Recommended Posts

Hi all;

I hope everyone is doing well! I was curious if anyone has changed how they do things in the contracts with the new HUD rules. I read that they are only allowing 3% seller concessions instead of 6%. This would decrease the amount we could offer (option payment and rent credits, which usually are applied towards the price, or to seller concessions, preferred by a lot of lenders).

Of course, the owner financing rules will likely effect a lot of things for those who buy with owner financing, and sell with owner financing. I would love to hear what all the sages of the business think about these two items. Thanks and happy investing!

 

Eric

Share this post


Link to post
Share on other sites
I hope everyone is doing well! I was curious if anyone has changed how they do things in the contracts with the new HUD rules. I read that they are only allowing 3% seller concessions instead of 6%. This would decrease the amount we could offer (option payment and rent credits, which usually are applied towards the price, or to seller concessions, preferred by a lot of lenders).

Why would it make a difference where the credits show up on the HUD-1? The seller is agnostic where the reduction in their net comes from, and the lower gross price reduces the lender's exposure to the collateral.

Share this post


Link to post
Share on other sites

Interesting question, Eric. I don't think that would affect the purchase of a property should the option be exercised. I don't view either option consideration or rent credits as seller concessions, and I think the title company or attorney handling the paperwork can simply adjust the purchase price to reflect this.

Not an attorney, so my take on this might not be the last word.

Share this post


Link to post
Share on other sites

Since the seller can only contribute 3%, as of April..15th..I think... if you are offering more than 3% in rc's, then you would have to adjust the sales price.

When we go to get people closed, if they need additional funds, we can go to the seller to see if they con contribute a little more to get them closed, but now we won't really be able to, as our rent credits are often pretty close to about 3%.

Also, it's not about the reduction in the sales price, as it doesn't matter the price, the buyer will still have their closing costs, which can be upwards of 4% of the sales price, or even more depending on the time of year they close, due to pre pays.

Bottom line: your buyers will need to prepare to have more money in reserves for closing costs, as the seller is limited on what they can do to help.

Share this post


Link to post
Share on other sites

One last bite out of this question.

Consider the lender in the beginning when you screen your tenant/buyer. (many reasons to use a loan officer not just to pre-qualify) The reason for this is that some banks are now allowing documented payments on lease options as trackable payment history. In the past many people would have what's called a "silent land contract" to do just this. This would be a land contract (contract for deed in the southern states), but would not be filed so it wouldn't cloud the title.

 

What's the result? Refinance instead of money down, which makes this all irrelevant. Like MC says, use your rent credits/consideration to drop their finance amount not their ability to get financing.

Just my two cents,

Adam

Share this post


Link to post
Share on other sites

AHHHHHH!!!

An Adam King sighting!!! :lol:

Nice to see ya around.

 

Consider the lender in the beginning when you screen your tenant/buyer. (many reasons to use a loan officer not just to pre-qualify) The reason for this is that some banks are now allowing documented payments on lease options as trackable payment history. In the past many people would have what's called a "silent land contract" to do just this. This would be a land contract (contract for deed in the southern states), but would not be filed so it wouldn't cloud the title.

 

What's the result? Refinance instead of money down, which makes this all irrelevant. Like MC says, use your rent credits/consideration to drop their finance amount not their ability to get financing.

This is good to know, I reckon.

I'm used to selling with owner financing vs. L/O. So now you're saying they're treating L/Os as if they were sold as owner financing?

This was my hang up with CAs --the financing, coupled with the liability...although, we're contractually

no longer obligated. Sticking just any ol' T/B that had $3k to put down and saying, "Adios" isn't the way to go. That'll come back

to bite you sooner or later. That's why I'm wanting to get the best qualified T/B into a property when doing a CA.

With the T/B getting new financing after they had put down a few thousand (to pay the option consideration), I didn't want them to have to

pay that and then the bank ask for a few more thousand for the down payment. :mellow:

 

Just a little more stuff to clear up and I should be back into CAs.

Share this post


Link to post
Share on other sites
AHHHHHH!!!

An Adam King sighting!!! :ninja:

Nice to see ya around.

 

Consider the lender in the beginning when you screen your tenant/buyer. (many reasons to use a loan officer not just to pre-qualify) The reason for this is that some banks are now allowing documented payments on lease options as trackable payment history. In the past many people would have what's called a "silent land contract" to do just this. This would be a land contract (contract for deed in the southern states), but would not be filed so it wouldn't cloud the title.

 

What's the result? Refinance instead of money down, which makes this all irrelevant. Like MC says, use your rent credits/consideration to drop their finance amount not their ability to get financing.

This is good to know, I reckon.

I'm used to selling with owner financing vs. L/O. So now you're saying they're treating L/Os as if they were sold as owner financing?

This was my hang up with CAs --the financing, coupled with the liability...although, we're contractually

no longer obligated. Sticking just any ol' T/B that had $3k to put down and saying, "Adios" isn't the way to go. That'll come back

to bite you sooner or later. That's why I'm wanting to get the best qualified T/B into a property when doing a CA.

With the T/B getting new financing after they had put down a few thousand (to pay the option consideration), I didn't want them to have to

pay that and then the bank ask for a few more thousand for the down payment. B)

 

Just a little more stuff to clear up and I should be back into CAs.

 

Yeah, I know. First it's the due on sale clause then the anti flipping rule then...oh boy, we made a mistake, ah...we were kidding, you can do whatever you want in order to help wall street get their pants back on... :lol:

 

Again, make SURE that the lender you're using (mortgage broker will know them personally) allows for the payment history on a lease in order to provide a no/little-money down refi. If they do you're in good shape as long as they don't back out and make the buyer get another lender that doesn't. Again, this is why some people used land contracts (non-documented/filed) in case they needed provable payment history on the lender's terms. The real question is if that's legal or not when it comes time to financing and/or with integrity to the buyer if the deal goes south.

Speaking of going south, air conditioner problems in Atlanta again...oh freakin boy.

Atlanta, the other "four letter" word of which we do not speak. :mellow:

Adam

Share this post


Link to post
Share on other sites

Haven't heard from ya in a while.

Are you living in Atlanta now?

Share this post


Link to post
Share on other sites
Haven't heard from ya in a while.

Are you living in Atlanta now?

 

WTF? Are you nuts! :ninja:

HELL no! We just made the mistake of investing there! DOH!!!!!

Ironically I don't have much room to talk as I'm still in Michigan. You know, 9 months of winter and 3 months of bad skiing? :wacko:

Adam

Share this post


Link to post
Share on other sites

So are you guys saying that most lenders are now looking at the option consideration and the rent credits as seller concessions? And that, as of April 15th according to the new guidelines put forth by HUD, those together can not total more than 3% of the purchase price? Or am I missing something? Because if that is the case, it will certainly impact our business greatly I would think.

Share this post


Link to post
Share on other sites

JC, we haven't faced this new regulation yet. But I suspect a crafty attorney or title company pro will find a legal loophole around this where option consideration and/or rent credits won't be affected. We shall see. . .

Share this post


Link to post
Share on other sites
JC, we haven't faced this new regulation yet. But I suspect a crafty attorney or title company pro will find a legal loophole around this where option consideration and/or rent credits won't be affected. We shall see. . .

 

MC,

 

Would it not affect offers we are currently sending out if it is definitely going into effect so soon? I wouldn't want to stick a t/b in a property that has no hope for financing and/or muck up the deal from the get go.

Share this post


Link to post
Share on other sites

JC, I don't see how this will affect any offers you are making. As for the tenant/buyers, keep in mind one of the advantages of a lease purchase is that the t/b has the luxury of buying time before buying the property. With some effort and cooperation on everyone's part, and beginning the financing hunt early on with an experienced and well connected mortgage broker, the deal should go down as expected. The key is to get the t/b to start the process early on, and not wait until week 50. Easier said than done, in my experience.

Share this post


Link to post
Share on other sites
JC, we haven't faced this new regulation yet. But I suspect a crafty attorney or title company pro will find a legal loophole around this where option consideration and/or rent credits won't be affected. We shall see. . .

 

MC,

 

Would it not affect offers we are currently sending out if it is definitely going into effect so soon? I wouldn't want to stick a t/b in a property that has no hope for financing and/or muck up the deal from the get go.

Its not a big thing JC, just that your T/B's will have to have reserves at close. The 3% is ONLY in regards to the seller concession. This is totally separate from the Option Consideration, which is reflected as earnest. We've always gone to the seller first when the buyer needed an extra...say..$1500 or whatever to close. But now, they are capped at 3%. The rent credits are reflected as a seller concession towards the buyers closing costs.

Share this post


Link to post
Share on other sites
an experienced and well connected mortgage broker

 

Now there's a problem. They seem to as plentiful as herds of unicorn right now. I tried refinancing a property last year and it took a full year to do it (closed March of this year) because they all seem to keep disappearing. Let alone trying to find one that actually knows what he/she is doing...

 

*Still bitter* :ninja:

Share this post


Link to post
Share on other sites

×
×
  • Create New...