When flipping a house, how do I get around seasoning requirements?
Financing is always a problem for house flippers. Because of recent problems with mortgage fraud, many lenders have instituted seasoning requirements. They require you to wait 3-6 months before selling the property or a higher value than your purchase price. When you’re trying to flip a house, this is a big problem. Here are a few tips for getting around it:
1) Build a Case for a Distressed Sale
If you can prove that you bought the house for a substantial discount from a motivated seller, some lenders are willing to waive their seasoning requirements. Before buying the house, you might ask the seller’s agent to write a description of the seller’s situation and their reason for selling the house below market value. You might also ask permission to show the lender any other types of documentation–letters concerning missed payments, foreclosure notices, etc.
If you’ve already bought the house and can’t convince the original seller to corporate, you have other options. Show comps from other sales in the neighborhood and demonstrate that the property was underpriced. If you bought the real estate investment substantially below listing price, you might also point out the difference and explain that you were able to negotiate them down due to a distressed sale.
Imagine you’re in a court movie and you’re trying to prove that you bought the house for a steal. The lender may or may not believe you, but it’s worth a shot.
2) Document Improvements to the House
I’ve had some luck with getting around seasoning requirements by documenting the improvements I’ve made to the house. For example, I normally take pictures of the house when I buy it and then take a new set when I’m finished repairing it. The difference is usually so profound that the lender can understand the increase in value.
You should also keep all of your receipts for improvements. If you’ve spent $10,000 on repairs, it’s reasonable for the value of the house to go up at least $10,000. Give the lender all of your receipts, so they can understand how much money you’ve put into the property and how that affects the purchase price.
3) Present Multiple Appraisals
When flipping a house shortly after buying it, you should also consider ordering multiple appraisals to document the increase in value. Normally, lenders only ask for one appraisal, but providing two or more gives you much more credibility. You might even encourage the lender to pick their own appraiser, and you will foot the bill.
It’s expensive but powerful. Where you might be able to pay off one appraiser to give you a bogus value for the home, it’s nearly impossible to pay off two or three, especially if the lender chooses one. So, they are much more likely to believe you have a legitimate sale and approve the financing.