Flipping Properties within 90 days

Recently FHA announced that they would insure loans if the seller had been on title for less then 90 days. This temporary waiver is a departure from a long standing rule to prevent property flipping. For years FHA has maintained that flipping presented an opportunity for fraud. By turning around a property in a short time, an investor in collusion with an appraiser, agent, lender, and or title officer could defraud lenders and FHA for large sums of money.

However, FHA now recognizes that legitimate flipping is happening in the market and their policy was prohibiting bona fide transactions from taking place. FHA does not lend money, but they do insure lenders against loss. So, the other part of the flipping equation is the lender. Just because FHA will insure, does not mean lenders will lend. We are starting to see more lenders accept transactions where the seller has been on title for less then 90 days. Most are capping the increase in value to 20%. Meaning a home purchased by an investor for $100,000 cannot sell for more then $120,000 within the 90-day window.

We have just added another source that will lend on properties with more than 20% appreciation, but the criteria is tight. If your sale complies with the following, it may be eligible for an FHA loan even if the appreciation has exceeded 20% within the 90 day period.

• Sale must be an arms-length transaction
• Property can not have a pattern of flipping or multiple transactions
• Title must reflect the current seller as the owner
• Not show multiple transfers of ownership recently
• Transaction cannot be a FSBO and we must be able to show that the home has been marketed fairly
• No identity of interest may exist between seller and any party in the transaction

 
Although there are some challenges, this option allows many of the foreclosed homes to be renovated and sold. Our communities will benefit for having owners occupying recently vacant homes.