In case you have not heard there has been some excited news from FHA recently. They are again waiving their anti-flipping rule for another year. This was signed on January 15, 2011 and went into effect this morning. There seems to be some confusion so here is the low down.
The term real estate flip has a bad name in our industry. It is generally thought of as an illegal scheme where a real estate investor (REI) buys a property and does very little to no improvements and then sells for a handsome profit. It is also believed that these schemes use illegal and inflated appraisals when the REI sells the home to the end user.
For these reason HUD had decided to require 90 day title seasoning on all loans it insures. This made it necessary for the REI to hold the property for at least 90 day before they could contract with their buyer.
The reality is REIs are a very important piece to our housing recovery and anything that will prevent them from doing business is bad for our economy. HUD notices this and is acting by waiving the 90 day title seasoning requirement under these conditions:
- Transaction must be arms length
- The seller must hold title (no double closings)
- The property has no flipping history (they look at a 12 month chain of title)
- The property was marketed openly
If the REI is selling the property for more than 20% of what they paid for it, exclusive of any repairs, there are some additional requirements:
- Seller must prove substantial improvements or the value can be justified by a second appraisal. (I strongly recommend you keep good records of all improvements)
- A separate FHA inspection will be required
Just because FHA will insure the loan does not mean that all FHA lenders will do the loan. If you hear that your buyer is getting an FHA loan and they were denied because of the anti-flipping rule you will need to refer them to another lender. Feel free to click on our “need a referral” link above for a list of investor friendly lenders.
This is only for FHA loans. Mortgage Insurance companies still have a 90 day title seasoning requirement meaning that if your buyer gets a conventional loan they will need to wait 90 days or put 20% down to avoid the mortgage insurance requirement. 
My husband and I have been “flipping” houses in Pueblo, Co for 4 years now. Most of the rehab is done by us, roofs, furnaces, major electrical, etc being out sourced. We are not getting rich by any means but are doing well enough that I have quit my full time job. This has given us time to do our flips and enjoy life more.
Now this new rule comes into effect and I see it having the potential to put us out of business. The home inspections are the one nightmare we have had. You can’t take a house built in 1923 and update it to one built in 2011. Some of our inspections have been tuff but we really do offer a good safe home for a reasonable price. I am frustrated by this part of the new rules.
This rule wont put you out of business trust me. The worst thing that will happen is that you have to hold your property for 90 days and is that really so bad. I think this is very positive for the investor community and shows that FHA sees the value that a fix and flipper can bring.
We have always held our houses 91 days. It usually takes the two of us that long to get it to the standard we consider sellable. We don’t go with the “lipstick on a pig” theory, we really fix these houses up. The inspections that the buyers get have been fun enough. Things like a new furnace filter in a brand new furnace to ripping out window trim to retie the rope on the old pully weight system. Some items are this simple but others much harder to correct. These inspectors “have” to find things, there isn’t a house in Pueblo that the foundation is perfect, I can see a structural engineer being called in and the foundation needing to be “corrected”. That’s what scares us. We are game for change that brings about better products, but our government has a way of overkill. Thanks for your point of dicussion on this, it helps us to hear from others.
After re-reading the new rules and your response I got wondering if I has read them wrong. If we do keep our “flips” over the 90 days will there have to be that FHA controled inspection?
That will depend on what the underwriter wants. With this extension it is like the 90 day rule is not even there so it wont change what is needed to qualify for the loan.
We used an FHA loan to purchase our first house and we ran in to some toburle with financing as well. We were using a mortgage broker who pre-qualified us but when we found a house and it was time to get approved we were denied?! They listed several reasons why they wouldn’t approve us for the loan but we went to a direct lender and they approved us and we got the house. They were able to make certain exceptions that the other lender wasn’t. So each lender has their own set of guidelines in addition to the guidelines enforced by FHA. So you might be able to get around your problem by trying a different bank/lender. Good luck! Was this answer helpful?
This is great news. Thanks for posting.
Can you please refer me to a lender that will do FHA loans in the state of NJ for my end buyer with no title seasoning for a single family home.
Amen Soliman
Amensoliman@yahoo.com
908-420-0200
I wish we could help, but unfortunately we do not know any lenders in New Jersey. Good luck with all your future endeavors!
Brandy Imel
Pine Financial Group
need a lender for my buyer. 750+ credit. Looking to owner occ the property and take out fha loan. This is for a 3 unit apartment building in chicago. she has the 3.5% dp and 3 months reserves. please email me the contact info @ qualityconstruct@live.com
Sorry this post was really meant to be educational only. We do not write these types of loans. We are only doing hard money loans for fix and flips in CO and MN. Good luck!