FHA Mortgages now allow flipping
The FHA mortgage has now become much more useful because they will allow a new mortgage on a rehabilitated home. The term is called flipping. Buying a home and then flipping it before 90 days have elapsed. Prior to this ruling a buyer had to hold a property at least 90 days before an FHA mortgage could be obtained for a new buyer. FHA has signed a waiver that takes effect on February 1, 2010 and is limited to sales meeting the following conditions:
1) Of course all transactions must be arms length for all parties. This will be determined using some of the following practices. The seller should hold title, the seller / property should not show a pattern multiple transfers within the last 12 months and the property was marketed openly.
2) In situations where the properties sale price is equal to or greater then 20% above the acquisition cost the waiver and a new FHA mortgage could be issued only if the lender justifies the increase in value with a second appraisal and documents the costs (labor and materials) incurred to improve the property and the appraiser includes the documentation with the appraisal. The lender must also provide an inspection report to the purchaser but it doesn’t necessarily need to be a 203(k) consultant doing the inspection. The inspector must also be an arms length participant in the transaction. The inspection must be a full top to bottom structural inspection. The inspection must include at a minimum the foundation, floors, ceilings, walls, roofs, all exteriors, appurtenant structures such a decks, balconies, walks and driveways and include the insulation and ventilating systems.
3) The waiver is for forward mortgages and doesn’t apply to reverse mortgages or an HECM (Home Equity Conversion Mortgage) used for a purchase.
FHA / HUD has found that many buyers of REO and foreclosed properties have the means to buy repair and resell quickly. Because of the dramatic increase in foreclosures the 90 days rule was inhibiting the sale of some of these homes. By allowing new FHA mortgages on these homes FHA hopes to help improve the resale market.
Jim Johnson and comments are always welcome.
Everett Mortgage on Line
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