We are looking at a few foreclosure homes. They are all owned by Fannie Mae. All of them are asking for proof of funds, since it is going to be a cash deal. We are planning on getting our funds through a hard money lender. But don’t you have to have a house under contract before submitting your proposal to a hard money lender? Isn’t their decision based on the overall deal? I need to know how to get around the proof of funds. They won’t submit any offers without it! Please help! All advice is greatly appreciated!
There aren’t any HM lender (institutional) that will work with you on this, but a private individual might. Do you have money to pay closing costs and fees? If you want the lender to private all the financing with ZERO to you and ALL the risk to them, it won’t happen. I hope this helps.
You need to TAKE EXTREME CAUTION when dealing with the Fannie Mae foreclosures. Those properties have a deed restirction that says you cannot sell or finance for more than 20% over the original purchase price. The restriction is for 90 days. (restrictions have been taken down from 12 months to 6 months to 3 months now)
For example - $100,000 Purchase:
You could not sell the home for more than $120,000 in the first 3 months.
If you took out the loan for 100%, a full $100,000, then then $20,000 is the most you could take another loan out for in the 1st 3 months.
In doing a hard money loan, $20,000, would be the max you could add in on top of the sales price. That may not be enough to cover the costs and rehab. Most hml want to factor in costs upfront.
Whoever the agent is for Fannie Mae should be going over this with you.
On a side note. You can always get preapproved for a hml based upon your individual merits. If you follow the formula for their loan then there should be no problems in entering into a contract and succesfully getting financed.
A hard money loan could look like this.
70% = $70,000 max loan
Deduct out 5-6 pts, 4 months of payments at 14%, and ~$1,800 in normal loan fees. = ~$10,000
That leaves you with about $60,000.
Rehab funds based upon the itemized list you send to the lender will be deducted out next and put into escrow.
Let’s estimate that at $15,000
So the remaining $45,000 would apply towards the sales price. If this is short, then the seller can sometimes hold a note for the balance.
There should be no problems in the financing with any deals that you present like this unless there are specific problems with the property.
As Ben said, most HML’s will pre-qualify you for a loan and will give you a proof of funds or pre-qualified letter. Of course, the actual loan will still have to fit the lenders specific criteria.
Thank you all for your replys! I really appreciate them! They all have helped!