Flipping Out on New FHA Regulation

Information provided by Jim Monninger, Mortgage Specialist, Jim@FirstTrustMortgage.biz

On January 15, 2010, FHA made some changes to the June 7, 2006 anti-flipping policy on property flipping.

For the past 3 1/2 years HUD has not allowed the resale of a property within 90 days due to flipping concerns. While the initial intent was to prevent the rapid escalation of the price of homes through questionable flipping of properties, it is now hindering the sale of homes since prices have fallen and more properties are the subject of foreclosure.

While there were several exemptions to the rule, almost all applied to Banks and Financial companies. This change will directly impact the small investor who buys properties cheaply and repairs them for resale.

Currently many HUD or Lender Repo's are sold "As Is" without warranties or repairs. Many of the foreclosed homes are purchased by investors who have the means to repair the homes but may not purchase the homes due to the 90 day holding requirement to sell to a new FHA Buyer and the cost and risks associated. These buyers have to account for the longer holding time and potential risk of vandalism. Thus the homes tend to sit vacant longer and hinders community stabilization and revitalization.

Beginning February 1, 2010, sellers that meet the new requirements may be able to sell the property prior the old 90-day rule. The sales must be an arms-length transaction. The seller must hold title to the property (i.e. no double closing). There must not be prior evidence of flipping on the property and special rules apply if the increase from the sellers purchase price the buyers purchase price is greater than 20%.

This is a positive change from HUD. Homes may stay vacant less and buyers have more options. These transactions will be under more scrutiny but they can now get completed

With FHA case numbers pulled on or after 4/5/2010 the UFMIP (Up Front Mortgage Insurance Premium) increases from 1.75% of the loan amount to 2.25% of the loan amount. The good news is that it is still financed as an addition to the base loan amount.

Another bit of good news is that the 6% seller contribution will continue for another few months and the talk of increasing the FHA minimum down payment from 3.5% to 5% has been but on indefinite hold

The following link is the link to the FHA condo search website:

https://entp.hud.gov/idapp/html/condlook.cfm