FHA waives 90 day flip rule ! Home run or handicap?
By Norman Sinai
If you’ve been paying attention to anything “real estate” as of recent, you have probably heard that the Federal Housing Administration has recently waived a guideline that prohibited the purchase of “flip” properties with FHA financing.
To summarize, a “flip” property is a property that has been owned for less than 90 days from the time of purchase by the current owner. Up until now, you couldnt get an FHA loan on a property fell within this time frame of ownership, unless you closed on it after the 90th day.
This means anyone shopping with an FHA loan would be precluded from buying the foreclosures that always seem to be a part of the inventory of homes for sale that are quickly remarketed by investors who buy & flip these homes. Homes which always seem to be within the entry level to middle priced market in most major metropolitan areas. Until now, investors that bought and resold these homes or banks that remarketed foreclosure inventory, couldn’t sell to FHA buyers without waiting 90 days first.
The waiving of this guideline which now made these homes available to purchase with FHA financing, appeared to be a huge homerun for both the investors that buy properties and fix them up for resale & the FHA home buyers which are always facing the limited number of homes for sale in todays real estate market. FHA Buyers now had an addition of available homes for sale that they couldnt previously touch just because of that one Guideline.
Often times investors limited to cash or large down payment buyers, take uninhabitable or rundown properties & improve these homes for resale & profit. Not only the homes themselves are improved, but the areas and the values of the neighborhoods surrounding these homes.
THE UGLY TRUTH- Most banks are not funding these loans right now ! Of the couple that are, there are strict guidelines being imposed, not just by FHA, but by the lenders themselves. For example, FHA says that they will fund a property that falls within 90 days from purchase of the current owner, but if the sale price exceeds 20% of the original (current) owners purchase price, this will likely require 2 appraisals verifying sufficient renovation to justify the increase in value. A little harsh when you consider that 20% isn’t profit, its just the difference between purchase & resale price including all costs the current owner bears ( rehab, selling costs, etc ), and who is to say what is a justifiable increase to FHA ? Hold on- of the couple of banks doing these loans, one is not even lending on these purchases if the sales price exceeds 20%, and most big banks aren’t doing them all!
The bottom line, good news or bad, it is what it is- What was thought to be a very exciting addition to the industry, is turning out to be a big disappointment to buyers & investors- Were learning that just like the time FHA increasedthe conforming loan limits, banks will not always follow suit right away & there is typically a layover as well as self imposed rules that the lenders themselves put in play in addition to FHA’s policies. Im hoping for an improvement to this new waiver soon for the benefit of all the buyers & investors out there !