FHA Allows Flipping with Restrictions

I received this email from one of my preferred lenders today.  See the email regarding FHA lifting the 90 day restriction on buying houses that have been rehabbed and make sure you read the qualifiers at the bottom.   And if you need a lender, Tom is a good one.

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FHA has suspended the anti-flipping rule for homes owned less than 90 days by the previous owner though January 2012. For years, the FHA has had a strict prohibition: It wouldn’t insure a mortgage on a house if the seller had owned it for less than 90 days. The ban was a reaction to fraudulent quick flips of houses that inflated their values far beyond market worth.

The FHA maintained its 90-day anti-flipping rule through much of the past decade. But now it is suspending the policy, at least for the next year. In an advisory to lenders, FHA Commissioner David H. Stevens said the agency will again provide mortgage insurance for some purchases in which the seller had closed on the property less than 90 days earlier. The objective, Stevens said, will be to speed up sales of renovated houses to first-time and other purchasers. With foreclosures at record levels — an estimated 2.8 million filings last year — many communities are faced with excesses of bank-owned properties sitting unsold, often in poor repair.

This is a huge change and can bring you customers that cannot put down 5-10% and qualify for conventional loans at the lowest interest rates. By waiving the 90-day rule, private investors will be more likely to bid on these houses, fix them up and sell them to buyers who will now be able to gain early access to FHA financing, which offers 3.5 percent down payments. The federal government hopes to help low-down-payment home buyers, investors who fix up foreclosures, and communities burdened with too many bank-owned and foreclosed homes — all with one potentially far-reaching policy change.

There are two key restrictions designed to protect end buyers and the FHA alike:

— No game-playing or conflicts of interest among buyers, sellers, realty agents or others involved in the deal are allowed. “All transactions must be arm’s-length, with no identity of interest” among any of the participants.

— Price run-ups must be relatively modest and justifiable from the time of the investor’s acquisition to what is paid by the applicant seeking FHA financing. Generally, the limit will be 20 percent.

When the price jump exceeds 20 percent, the FHA expects participating lenders to require extensive documentation of the renovation expenditures made by the investors to justify the hefty price increase. Lenders also are required to order an independent property inspection so the purchaser can understand the house’s physical condition and the improvements made.

How can you use this news to get business in a tough market?

·         Contact data base that foreclosures that are offered by investors at great prices are available for 3.5% down FHA loans at low interest rates, reasonable loan underwriting, up to loan amounts of $271,050 in the KC area

·         Contact investors to seek listings of their flip homes or to get a list of homes they have to send to your data base

·         FHA still allows a non-occupying co-borrower to qualify with income. This is great for a parent that wants to help the next generation to get into a home, but they cannot qualify because of income. The occupying borrower does have to have a decent credit, but does not have to have any income. Send your data base this idea to get a child still living at home into a home, or still renting. They can buy this foreclosed homes at depressed values and then reap the profits when sold

Call me with your customers that need to be pre-qualified.

Life is Good!

Tom Brassfield
7400 W 135th Street
Overland Park, KS 66223
Mortgage Loan Officer
Office 913-752-5387
Fax 877-786-3585
tbrassfield@securitysb.com

14 Comments

Filed under Financing Options

14 responses to “FHA Allows Flipping with Restrictions

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