Investors that "boldly go" where others fear to go are an important part of the housing recovery. These investors are willing to take high risks for high rewards and gamble on buying, fixing and reselling properties in distressed neighborhoods. If it wasn't for their efforts, many of these properties and neighborhoods wouldn't be cleaned up for years.
Most Flippers are working with cash or private investment money to purchase and repair homes with the intent of putting them back on the market right away. In many instances, these investors have a ready, willing and able pool of buyers to purchase the home as soon as it has been renovated.
Until recently, one of the biggest challenges facing Flippers had been a lack of mortgage availability until a 90 day waiting period had passed. Mortgage guidelines required the investor to take title to the property and wait 90 days before even being able to enter into a contract with a buyer. This resulted in the investor having to hold the property longer than they wanted, as it increased their costs and lowered their return. That meant, find a cash buyer or factor more cost into evaluating the profit potential of the Flip, which resulted in fewer deals being worth the risk.
Earlier this year, HUD recognized the contribution Flippers were making to the housing recovery. They invoked a temporary waiver to the 90 day waiting period to help the market absorb more inventory by opening the channels to a larger pool of buyers. The waiver eliminated the 90 day wait period, but Flippers still have some restrictions. If the property is being sold for more than a 20% profit above the documented sales price plus improvements, then a second appraisal is required to support the higher appraised value. That doesn't seem to unreasonable given value concerns these days.
However, the reality is banks and mortgage lenders are still very risk adverse. Just like all other FHA guidelines, each lender places their own overlays or risk mitigation procedures on top of FHA rules. that restrict guidelines even further than FHA requires. Most people don't understand that FHA doesn't provide mortgage loans, banks or lenders do. FHA only insures the loan to mitigate the banks risk of originating a mortgage with less than a 20% down payment.
The larger question for the lender becomes, are they willing to risk approving the waiver and exceeding the 20% profit level, as FHA places the final determination of value on the banks' underwriter. This leaves them with the potential risk of having to repurchase the loan. Therefore, most lenders are fearful of breaching the 20% profit restriction regardless of having a second supporting appraisal.
As a professional Fort Lauderdale mortgage broker for the past 25 years, I understand the role and value Flippers bring to the housing recovery. For those buyers, Flippers or Agents confronted with this issue, we offer a special "FHA Flip Waiver" Florida home loan that follows FHA's intention and will be closed without profit restriction as long as supported by a second HVCC compliant appraisal.
If you're bold enough to have taken the Flipper first step, don't let this waiver stand in your way. Mitigate your risk with an "FHA Flip Waiver" Florida home loan.
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