FHA Announces Support for Flips and That They're Keeping the 3.5% Down!

As we announced at the MLS Tour meeting on Tuesday, HUD has adopted a temporary policy expanding access to FHA loans and allowing for the quick resale of renovated and foreclosed properties (effective 2/1/10).

This is exciting for both buyers and sellers! Take a moment to review the details. This opens up more properties for buyers using FHA loans and sellers will have more eligible buyers.

In addition, HUD has decided to keep the minimum 3.5% down payment number for the vast majority of borrowers and use other risk mitigating approaches.  Details below.

FHA Eliminates 90-day Restriction 

Previously, FHA mortgage loans were unavailable for those borrowers purchasing a home that has been held for less than 90 days. This waiver lifts that restriction, expanding availability of FHA financing.

The FHA research shows that "acquiring, rehabilitating and reselling foreclosed properties often takes less than 90 days". The new waiver allows an FHA borrower to be eligible for purchase earlier than the prior 90-day waiting period.

The temporary waiver is effective February 1, 2010 and valid for one year, unless further action takes place.

This is exciting for realtors because it opens the buyer pool to FHA borrowers, and exciting for the buyer, because there are more properties to look at.

Click here for the full press release.

Additional Conditions may apply...

Where sales price is more than 20% above seller's cost

• All Transactions must be arms-length, with no identity between the buyer and the seller or other parties participating in the sales transaction
• In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets additional conditions
  • Support the renovation work done to justify increase in sales price
  • Second appraisal may be required
  • Property inspection to confirm quality of the work done
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. 

View full details on the HUD website.

FHA keeping down payment minimum at 3.5%! 

Much has been said about the default risks at the FHA and the possibility of increasing the down payment minimums to 5%.  Today HUD announced changes that are a welcomed alternative to the down payment change.  True, one of the 3 changes does affect down payments for a small group of people, but overall the alternatives are a better solution than jacking up the down payments.

1. Down payments stay at 3.5% unless you have credit scores below 580.  If you are in that dog house your minimum down payment will be 10%! Lenders are typically looking at 620+ scores anyway and they all will be able to bring 3.5% of their own or even a gift of the down payment and get themselves or their kids into a home with no money of their own!
2. Upfront Mortgage Insurance Premiums (UFMIP) will soon be 2.25% (vs current 1.75%).  Buyers will still be able to finance this into their loan amount so it will cost, but not require additional dollars at close.  This is to take effect this spring.
3. Seller Concessions will be limited to 3% (vs. current 6%). This may affect the amount needed to close for buyers, but remember that one of the biggest closing cost items, UFMIP can be financed.  This is expected to start this summer.

Overall, these are changes we can live with. View the full details of this announcement here.

As always, check out the Signet Website for more details, and follow me on Twitter for more instant alerts. We wish you the best and hope to hear from you soon!

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