Flippers looking to capitalize on low home prices across the country received good news from the FHA last week: the FHA’s flipper-friendly waivers will be extended through 2012.
FHA News – Flippers looking to capitalize on low home prices across the country.
Flippers—those who buy homes, remodel them, then resell at a profit—used to be shunned by the Federal Housing Administration (FHA), who in 2003 put into effect strict rules that basically marginalized the activity. Originally intended to protect borrowers from fraudulent appraisals and inflated prices, the FHA rules disallowed FHA borrowers to sign a contract on any home that had been owned by its seller for 90 days or less.
In 2010, with the real estate market in the doldrums and distressed properties threatening the health and vibrancy of many neighborhoods, the FHA re-visited its anti-flipper stance. The agency saw that, within the new context of real estate, flippers provided a key service, allowing neighborhoods to shed excess inventory and keep foreclosed properties from attracting vagrancy and blight. The FHA issued a waiver of the anti-flipping rules in 2010, which was originally valid only through January 31st, 2011. The agency later extended the waiver throughout the entirety of 2011.
In all cases, the profit margin of the flippers must not exceed 20 percent of the original sales price of the home (pre-flip), otherwise both lenders and flippers will have to satisfy certain criterion to assure the FHA that the entire deal is legitimate. All transactions must also be purely arms-length, and can only involve non-Home Equity Conversion Mortgage (HECM) sales.
With last week’s announcement, the FHA has now committed to its flipper-friendly approach through December 31, 2012.
See also:
Is it Time to Invest in a Home
Resurgence of the ARM loan
List of home builders
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As a loan officer who deals with a lot of investors, I applaud this extension. Anything that helps properties sell lmore quickly is a good thing.