FHA 90 Day Flip Waiver has been EXTENTED through December 31, 2011

UPDATE: January 28, 2011
Nothing Like waiting until the last minute (3 days before expiration) to let the mortgage industry know that a highly effective policy will be continued. Typical ... but we'll take it. Buyers can continue to use FHA financing to purchase homes from sellers who have been on title for less than 90 days. This includes homes being flipped by private parties.

Reminder ... most lenders impose additional underwriting guidelines for flip homes so buyers need to ask their loan officer what is required before an offer is made to prevent surprises after escrow is opened.


OriginalPost: December 15, 2010

90 Day Flip Waiver set to EXPIRE January 31, 2011
FHA’s 90 Day Flip Rule waiver implemented on February 1, 2010 is set to expire January 31, 2011. The waiver was for one year and designed to help buyers using FHA financing to access a broader selection of homes for sale … and it worked. In addition to foreclosure, short sale and equity seller listings, FHA buyers were able to add to their shopping cart the growing segmented of homes sold by investors who were rehabbing and flipping.

With the expiration fast approaching and no word from FHA of an extension, lenders notified us this week they have stopped accepting new FHA loan applications involving a flipped property. At this point, my advice:

BUYERS - before you make an offer on a home, make sure your Realtor checks to see if the owner has been on title at least 90 days and preferable 180.

INVESTORS - who are flipping in less than 90 days, don’t accept offers from FHA buyers at this time.

To learn more about the 90 Day Flip Rule for VA, Conventional and FHA loans, check out these additional popular blogs:

The 90 Day Flip Rule … Some Lender Have One While Other Don’t
FHA Takes a New Position on the 90 Day Flip Rule … its OK Now!
FHA 90 Day Flipping Waiver … Tips for Buyers and Sellers

Stay tuned for the next update.

FHA 90 Day Flipping Waiver ... Tips for Buyers and Sellers

It didn’t take long for FHA buyers to “bite” the previously forbidden fruit … flipped homes! The recent 90 day flip rule “waiver” is so fresh (effective date was February 1st) sellers are hesitating to accept offers from FHA buyers because they are worried lenders won’t fund them. It has been a time for calming nerves, double checking underwriting guidelines and reassuring all parties to the transaction that we can do it.

Hopefully this information will help you with your purchase. Make sure there is no relationship between the parties in the transaction. That includes a real estate agent/investor who is flipping and think they can be the listing agent too. It won’t fly.

Buyers and their agents need to be asking questions to learn how much profit the seller is expected to make on the deal. If it’s going to be more than 20 percent, the buyer needs to be prepared to pay for two appraisals. They don’t have to be ordered at the same time. Get the first one done to make sure value comes in at or above the contract price. Then move forward with the second one. Until we get clarification from HUD what to do with different value, expect the lender to use the lower of the two.

Another out-of-pocket expense the buyer needs to be prepared for is the cost of a home inspection. Home inspections are customary in this market of as-is deals but in the case of a flip that involves 20 percent or more profit for the seller … it’s required by FHA.

If you do your homework up front during purchase negotiations you will learn if two appraisals will be needed. Make it a 45 day escrow in that case. Once in contract, this should allow you enough time for the first appraisal to come in before requesting the second. Now that lenders are controlling FHA appraisals, the turn times take longer.

The definition of how profits are determined is a grey area so we are asking HUD for clarity. Here’s an example:


QUESTION: Let’s say a property was purchased at a Trustee Sale and in addition to paying the bid amount, they had to pay delinquent property taxes, past due HOA dues, etc. Are all of these costs weighed in when factoring the 20 percent? What about the cost of selling the property such as Realtor’s commissions, title and escrow, etc? Or is it only the cost of renovations and actual improvements to the property?

ANSWER: The cost of acquisition generally includes all items charged to acquire the home, not to sell the home. Generally acquisition would include seller paid costs (delinquent taxes, HOA, etc). I’m working with a lender who is asking these questions and more to get clarify on what they are defining as “acquisition”. Of course, as long as the cost of repairs or improvements can be documented, this would be allowed to be added to the acquisition.

I’ll update the post when new information becomes available.

Lenders Approving FHA Loans on 90 Day Flips

With HUD’s 90 day flip rule waived for one year starting February 1, 2010, FHA buyers are asking which lenders are approving loans on these previously forbidden homes. We are the largest mortgage brokerage in the county with over 100 lenders and so far have heard from 4 who said they will. Among them was Mountain West Financial who reversed their position today after their investors said they would not buy the loans. So now the list is down to 3 and hopefully more will follow:

1. Guild Mortgage
2. MetLife
3. NetMore America

If your lender is not on this list, find a mortgage broker who is doing business with one of these.

The 90 Day Flipping Rule ... Some Lenders Have One While Others Don't

UPDATE: January 15, 2010

HUD TAKES A NEW POSITION ON THE 90 DAY FLIP RULE … It’s OK Now!

If you’re not familiar with the 90 flip rule, check out my July 17, 2009 post below for background. It will help you understand why HUD’s change of mind is great news for everyone! HUD now believes the real estate market will benefit by allowing buyers to use FHA financing to purchase a home even when the seller has been on title for less than 90 days. This is a temporary waiver of the 90 rule for one (1) year and takes affect on February 1, 2010. With tight underwriting guidelines, many home buyers are realizing that FHA financing is their only way to afford home ownership. Here are more reason why I like it:

• FHA buyers will have more homes to choose from
• Investors will be able to attract a larger pool of home buyers
  Buyer and seller agents will increase their closing ratios
• Mortgage brokers will have more lending options for their clients
  

HUD’s updated policy comes with restrictions designed to prevent fraud so investors … pay attention:

1) There can be no relationship or interest between the seller, buyer or other parties to the transaction

2) Seller’s profit is limited to 20 percent above their acquisition cost

3) HUD may allow a sales price in excess of the 20 percent limit if the lender can document legitimate rehabilitation to the property and/or a second appraisal supporting value. In addition, the lender must order a property inspection and provide the report to the buyer prior to closing.

KEY INFORMATION: Home buyers should expect some FHA lenders will not follow HUD’s waiver and continue to impose the 90 day restriction. When getting pre-approved for financing, I suggest home buyers ask their mortgage advisor if they have lenders who accept HUD’s waiver before you go shopping to avoid surprises later.

These are highlights of HUD’s temporary 90 flip rule waiver. Let me know if you would like more information or have questions.

ORIGINAL July 17, 2009 post

With the hottest segment of today's market focused on homes priced below $300,00o, first time home buyers and investors are finding great deals. There's nothing wrong with an investor buying a home in need of some TLC, making improvements and selling for a profit. This is the essence of property flipping but when the buy and sell occurs within the first 90 days, alarms go off and everyone involved needs to understand there are rules to play by. The investor who purchases a property for cash has no restrictions when it comes time to flipping it. On the other hand, a buyer who is financing their purchase needs to understand there are lenders who will not approve financing for these properties during the first 90 days. So it's not only buyer beware but seller, realtor and mortgage professional too.

Let me clarify one important point. A bank who forecloses on one of their mortgages is not subject to flipping rules (at this time). Once they take title to a property they can immediately sell it to a buyer who is financing the purchase. The flipping rule is an place to prevent fraud by investors so it's directed at those attempting to sell a property for a big profit within the first 90 days of ownership.

Here's another important point. Not all lenders have a 90 flipping rule. Oh no ... that would make things too easy. Let's start with HUD because so many buyers in this market are using FHA or VA to finance their purchase. FHA says NO to flipping and to be on the safe side, don't even consider entering into a purchase agreement until day 91 (I'll explain why in a minute). The VA doesn't have a flipping rule. Fannie and Freddie DON'T either (conforming loans) but have tightened their fraud guidelines. Here's the catch ... MOST mortgage banks/lenders have a 90 day flip rule that prohibits financing and their rules triumph all others. Some will not allow the purchase contract to be dated within the flip period while others are OK with it. Another example includes preventing the seller from making unreasonable profit and scrutinizing appraisals even further. Rules vary from lender to lender. If you decide to buy one of these homes, have your mortgage advisor shop for the right lender to get the deal done.

The real estate markets are dominated by short sales and foreclosures. Buyers get pretty excited when they find a home for sale by what we call a "regular" seller. This is your first heads up. Buyers and their agents need to do their homework. Find out when the owner took title to the property, how much they paid for it and if they made any material improvements. If the property is being flipped, you have some decisions to make. Find a mortgage lender who will approve financing for the purchase within 90 days or negotiate with the seller for an escrow to close on day 91. Since conforming loans are subject to HVCC appraisal rules and require the buyer to pay for an appraisal "upfront" you'll want to make sure all aspects of the purchase meets your lender's guidelines before shelling out those bucks.