HUD has extended the anti-flipping rule through December 2012. FHA rules prohibit insuring a mortgage on a home that the seller has owned for less than 90 days. The extension will permit buyers to continue to use FHA insured financing to purchase HUD-owned properties, bank owned properties or properties resold through private sales. It will allow homes to resell as quickly as possible to help stabilize real estate prices and revitalize neighborhoods.
The rule allows for exceptions as long as the sale meets the following guidelines:
- All transactions must be arms-length, with no identity of interest between the buyer and seller (or other parties to the transaction).
- If the sales price is 20% or more above the seller's acquistion cost, the waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
- The waiver does not apply to reverse mortgages.
- The seller must be the owner of record.
- The property may not have been repeatedly "flipped" in the past year.
- The property has to be marketed openly and fairly.
When a home is being re-sold for more than 20% over acquistion cost within 90 days of the original sales date, there are additional requirements and many lenders will not accept those loans. FHA will require a second appraisal (the buyer can not be charged for the second appraisal). The seller will also have to show documentation to support the increased valuation due to improvements, etc. There will also have to be a property inspection to determine the quality of the improvements to the property and if there are any health or safety issues.
If the property is being re-sold within 91-180 days after the purchase date at more than 100% of the original acquistion cost, the same requirements will be made. The buyer can not be charged for the second appraisal.
Investors that purchase homes and renovate them need to be prepared to provide documentation of improvements made to the property. Keep all the receipts for repairs, improvements, etc. They also need to be prepared for the cost of a second appraisal.
After 180 days, these requirements won't affect the sale of a home. The sales date is determined by the actual closing date of the property and the new sale is effective with the date on the purchase agreement.
FHA is hoping that this will help stabilize home values to help the housing market. It will continue to make it easier for buyers to purchase foreclosed homes using FHA financing.
Leslie Vanderwerf, NMLS ID#335509, Summit Mortgage - Email - Website
