Ok, so I recently received my CMPS designation and part of the course, the instructor suggested a great way to help all these buyers that currently have good credit, good jobs, but maybe had to go through a short sale and still want to buy. Current guidelines say if you had a short sale or foreclosure and want to purchase a home through FHA, you have to wait a full 3 years. Its 7 years if you want to go conventional. (depends on the amount down too, could be less if you put more down). If you had a BK 7 they require a full 2 years from the date it was discharged / dismissed. So in the meantime, what we want to do is create an investor pool for these kinds of borrowers to come in and purchase a home for these future homeowners.
So lets break it down how this would work. If the borrower who had a short sale (we'll call her Sue) comes to me and we discover, she's excellent except for the fact she has to wait a few years to buy, then I partner her up with an investor that will help! The investor (we'll call her Jane) will let Sue go out and find a home that is worth below market value (which is key) along with the help of a trusted realtor. Jane then buys the home for Sue using a traditional non-owner occupied loan. That means that Jane only has to put 20% down on traditional lending or 10% down on HomePath homes. Sue would be required to put 5% down and give to Jane as a non-refundable cost.
At the same time that Jane buys the home for Sue, we also work out with the help of an experienced real estate attorney the details of the lease back as well as the future purchase and future purchase price. This future purchase price will also be adjusted so that the new purchase price will be beneficial for both Jane and Sue. That is where the idea of buying below market value comes in because without that part, it may not be as beneficial to either party. We are also careful not to violate any due on sale clause and make sure that the lender is aware of all contracts that co-inside with the purchase.
Sue agrees that she will rent the home back from Jane until the time comes when she is approved to purchase the home herself. The 5% non refundable down payment that Sue put down originally will go towards her purchase of the home when the time comes to buy it back from Jane.
The benefit for Sue is that she is able to buy a below market home that will be worth more in the future even after she pays off Jane. Sue gets to pick the home and can find one she really likes rather than pick from the few that offer seller financing.
The benefit for Jane is that she only has 15% into the investment and holds it there for max 2 years. Her mortgage on the property is paid for by Sue for the entire length of time, she can take the write off of the rental property and she makes more money on the sale!
Of course there will be other issues that could arise and each deal will be different but the concept I think could work and we have already a few clients that are very interested! I'm working on taking this to my local Metrolina REIA group that is filled with hungry investors.
Have you gone through this or worked with a client to help make this happen? Please tell me your experiences! I would love to hear your feed back.
Please don't keep me a secret!
Kelly (Byrnes) Waugh,CMPS, CMC
Certified Mortgage Coach
Fairway Independent Mortgage
O : 704.200.2323 / C: 704.578.4577 / F: 704.765.4367
KellyB@FairwayNC.com / www.KellyWaugh.com