With certain exceptions, FHA has prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver gives FHA borrowers access to a broader array of recently foreclosed properties.
But here’s the deal: only a few lenders are participating. Most lenders are selling their FHA loans to B of A or Wells Fargo. These banks are currently not buying flips. I can do flipped properties. I can do them with over 20% gain in purchase price. Just a note, this does not necessarily mean that the investor made 20% on their investment. They may have purchase the property and assumed existing liens which are not taken into account by FHA. Many properties, consequently do not fit within the 20% threshold.
In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.
The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
The waiver will took effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
•All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
•In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
•The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.