This piece of information should be very relative today considering that we are experiencing a high level of foreclosures in this country. Property flipping surged in 2004, 2005 and 2006 when real estate values were climbing. There was a surge of investors at county doorsteps bidding on properties at foreclosure sales. Many of these investors were able to "flip" these properties and sell them within a short time of buying them and make a tidy profit. Property flipping has been going on for some time, but as long as appraisals were able to verify property value, the buyers of these properties were able to get financing.
FHA financing is one of the only remaining cost effective financing options for low down payment borrowers. Back in 2003, FHA came out with a mortgagee letter (2003-07) that prohibited a borrower from using FHA financing if a property was re-sold within a short period of time after being acquired. The general rules appear below for your reference.
Re-Sales occurring 90 days or fewer following the date of acquisition
"If the property is re-sold within 90 or fewer days following the date of acquisition by the seller, the property is not eligible for a mortgage insured by FHA." Title transfer date starts the clock ticking for the 90 day rule.
EXCEPTION TO THE 90-DAY RESTRICTION
Acquisitions from the following entities are exempt from this rule
- State and Federally chartered Financial Institutions and Government
- Sponsored entities (FNMA, FHLMC, GNMA, etc.)
- Local and state government agencies
- Non-Profits approved to purchase HUD properties at a discount
- Employer relocation agencies in connection with an employee relocation
- Builders selling a newly built home
- HUD REO properties were HUD is the seller
BREAKING NEWS ON FHA PROPERTY FLIPPING RULE
On June 9th, 2008, FHA issued a waiver as it relates to property flipping and the restrictions placed on borrowers seeking FHA financing on foreclosed properties. In addition to the exemptions that are granted above, the new waiver allows the exempt entities to transfer title to a third party to facilitate the re-sale of these foreclosed properties. The exemption status transfers to these 3rd parties as well which is similar to the exemption offered for sellers transferring title to relocation companies.
Be careful.... As far as I can tell, the exemption does not transfer to an individual investor that is purchasing foreclosures and quickly trying to sell or "flip" the property. The normal rule would apply to that situation.
Re-Sales occurring between 91 and 180 days following the date of acquisition
If the re-sale date is between 91 and 180 days following the date of acquisition by the seller, the lender is required to obtain a 2nd appraisal made by another appraiser IF the re-sale price is 100% or more over the price paid by the seller when the property was acquired. Cost to rehab or repair the property is not considered in this calculation.
Work with an experienced FHA lender
Many originating mortgage brokers and lenders are not experienced when it comes to FHA financing as many lenders abandoned this financing option when 100% financing was available. It is important for Real Estate Agents and home buyers to work with a lender that has FHA financing experience. 1st Advantage Mortgage is an experienced FHA lender with delegated underwriting privileges. We originate, underwrite and fund the loans so we have control of the process from start to finish. We are licensed to do business in many states and have retail mortgage locations in Illinois, Arizona, Texas and Wisconsin.
Feel free to visit my web site at www.1AMLLC.com/grego to learn more about me or mortgage financing. I you or your clients need a trusted advisor, feel free to call me. Loan pre-approval analysis is free. Thank you for reading this article.
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