Fannie Mae and the Dodd-Frank Act:Pitfalls of selling to financed buyers
During a recent real estate transaction, I learned a lot about Fannie Mae and the Dodd-Frank Act, which some investors and real estate agents may not be aware of. Now that investors make up a large portion of the real estate market, its important to understand the ramifications of the Act.
Fannie Mae budget requirements
My husband, a local builder and remodeler (Brista Homes), purchases properties, including condos, for investment opportunities. While investors tend to overlook condos, he finds them a lucrative investment opportunity. Buyers enjoy the maintenance free aspect and they sell quickly. If you are one of the few considering investing in condos, it’s very important to make sure that the association is financially stable, 100% budgeted, and has placed 10% of their budget into reserves. In the case that you sell your investment property to a financed buyer, this is a Fannie Mae requirement and a strict one, too.
Recently, I received a call from another agent with a warning about the Fannie Mae requirements. The agent’s buyers had received their loan commitment, but two days before closing Fannie Mae pulled the loan, claiming that the association was not fully budgeted, falling $4,000 short. According to the board president, the association was fully budgeted per Florida statues. The association was forced to hire an attorney.
Investor flipping rule
Fortunately, this was not an issue with the buyers for a recent condo renovated by Brista Homes. However, the buyers ran into emotional roadblocks. First, Fannie Mae now requires that investors hold on to their properties for one year before selling it to a financed buyer. When flipping, Brista Homes only holds the properties for a maximum of three months. Fortunately, the buyers were able to get a Fannie Mae exception if Brista Homes could show significant improvements within 90 days. He had to submit a break down of all the repairs and costs performed on the unit, as well as before and after photos.
About two days after the exception was granted, the buyers hit road block #2. Fannie Mae, based out of North Carolina, decides they know more about Florida real estate than our local appraisers and claims the appraisal is too high.
The Dodd-Frank Act
The buyers quickly found a local portfolio lender who accepted the appraisal. The Dodd-Frank Act produced road block #3. The buyers were approved for conventional financing, but this was later retracted due to the fact that Brista Homes did not own the investment property for one year. The only loan type available to the buyers was an ARM (adjustable rate mortgage). They had the option to refinance after one year of ownership to a conventional loan. We now were dealing with distraught buyers and a lot of lost time. Knowing how much they wanted this home, and to get this deal done, Brista Homes offered to cover a portion of the closing fees. Lesson learned for even an experienced investor!
The best type of buyer for your investment property
- Remodel Your Lakewood Ranch Investment Home: The Steps From Start to Finish
- Lakewood Ranch Low Appraisal: Options for Buyers and Sellers
- Selling Your Lakewood Ranch Home: Unconventional Tips
- Non-Profit Leaseback Program For Short Sales Arrives in Sarasota, Florida
Search: The Lakewood Ranch Area MLS
Thank you for reading. I hope you find this blog post informative. Please feel free to contact me or comment below with any thoughts.