Any residential property that changes ownership more than one time in a 12 month span is considered a flip. Previously HUD did not allow FHA loans on properties that had been flipped less than 90 days from the most recent ownership change.
In January 2010 HUD created a special waiver that allowed FHA financing on flips less than 90 days; that waiver was set to expire December 31, 2011. HUD recently announced that the waiver has been extended through 2012.
As in last year’s waiver there are a few guidelines that must be met:
• 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. (Generally this means that the lender will need to do two appraisals to justify the increased price.)
A few other things to note:
-There are some lenders that still will not offer FHA financing on flips less than 90 days.
-The lenders that are allowing it can be more restrictive on debt to income ratios.
-Many require a home inspection and to have all items noted by the inspector fixed before closed of escrow.
This is great news for FHA buyers and the home market in general. Be sure to check with your lender if you’re considering making an offer on a flip less than 90 days to make sure they can offer this financing and what their requirements are.
Michael Regan (NMLS #275695) is a mortgage banker who specializes in Marin, Sonoma, and Napa counties. You can reach him at 415-672-2499 or 707-508-8473 for all your financing needs.