Selling flips, trouble with FHA buyers

11 Replies

It seems all of the buyers for my flips are FHA buyers. This has been frustrating on a few levels. FHA will not loan on a property that has changed hands within 90 days so I cannot move quickly. Also my buyers have needed two appraisals due to the drastic price differences in the home over a short period of time which also delays closing as much as two weeks.

Has anyone else had issues with this and or has advice for me? I am trying to really move quickly in this new year and this seems to be my biggest hurdle. I am located in Oregon and usually rehab and sell entry level homes. 

Thank you! 

No real way around it, I think it’s the dumbest rule out there, but we have to live with it. In your listing notes just put not FHA eligible till so and so date and if your having trouble still selling then might be smarter to just wait to list till 90 days is up. You would think FHA would figure out a way by now to get rid of this rule. No one else has it!!!!

Originally posted by @Thomas Gerhart :

It seems all of the buyers for my flips are FHA buyers. This has been frustrating on a few levels. FHA will not loan on a property that has changed hands within 90 days so I cannot move quickly. Also my buyers have needed two appraisals due to the drastic price differences in the home over a short period of time which also delays closing as much as two weeks.

Has anyone else had issues with this and or has advice for me? I am trying to really move quickly in this new year and this seems to be my biggest hurdle. I am located in Oregon and usually rehab and sell entry level homes. 

Thank you! 

If your buyers have good credit, Fannie Mae HomeReady will be better financing than FHA (lower down payment, lower APR, PMI is temporary, I could go on). I bet if you search you can find a more detailed response from me to exactly this question you asked; I've done multi-paragraph versions of this post in the past.

It's a bit more work for the lender, which is why everyone gets shoved into FHA, so you might want to loop your go-to lender in to help out.

Here's a commercial

Here's where you can look up if the property being flipped has a borrower income limit

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211
Originally posted by @Chris Mason :
Originally posted by @Thomas Gerhart:

It seems all of the buyers for my flips are FHA buyers. This has been frustrating on a few levels. FHA will not loan on a property that has changed hands within 90 days so I cannot move quickly. Also my buyers have needed two appraisals due to the drastic price differences in the home over a short period of time which also delays closing as much as two weeks.

Has anyone else had issues with this and or has advice for me? I am trying to really move quickly in this new year and this seems to be my biggest hurdle. I am located in Oregon and usually rehab and sell entry level homes. 

Thank you! 

If your buyers have good credit, Fannie Mae HomeReady will be better financing than FHA (lower down payment, lower APR, PMI is temporary, I could go on). I bet if you search you can find a more detailed response from me to exactly this question you asked; I've done multi-paragraph versions of this post in the past.

It's a bit more work for the lender, which is why everyone gets shoved into FHA, so you might want to loop your go-to lender in to help out.

Here's a commercial

Here's where you can look up if the property being flipped has a borrower income limit

https://www.biggerpockets.com/forums/311/topics/51...

Chris, is that the earlier thread you mentioned? Here is part of what you wrote there

"FHA is often the "whoops" backup plan.

For example suppose you have a 642 FICO score and I send you out house hunting with conventional in mind.

Three months later you go under contract and "whoops" your FICO dropped a few points. So we pivot to FHA and it still closes, and closes on time.

Suppose another borrower has a 582 FICO and the same thing happens. Now the "whoops" is that it does not close at all, since FHA is the backup plan for FICOs as low as 580. To a seller, FHA looks like you're starting with what should be the backup plan.

For folks looking to do FHA multifamily with good credit that do not currently own real estate (mentioning this because I know man yon this forum are interested exclusively in multifam), Freddie Mac Home Possible @ 95% LTV is both better financing, and makes for an offer that is more likely to be accepted.

Re: "but it's 5% down instead of 3.5% down!" -- FHA has a 1.75% funding fee, typically tacked onto your mortgage balance. 3.5% + 1.75% = 5.25%. Except that this fee is gone forever, whereas 5% down conventional is 5% towards equity."

And here is what you wrote later on in that same thread:

"FHA Amendatory Clause, which the seller is required to sign, and also probably the source of the confusion (the California Association of Realtors has this built into a CAR form, I assume this is true in most/all states):

 

Even though the "purchaser shall have the privilege and option" of moving forward if the appraisal comes in short, it's incredibly rare that an FHA buyer can make up an appraisal shortfall. Just like sellers and listing agents might assume an FHA buyer has a rock bottom FICO, they might also assume they are barely scraping together 3.5% down, since many do in fact multiply target sales price by 3.5% and save up exactly that much money, unaware of closing costs, that things break in homes after you buy them, etc."

[Chris, sorry if that's not the thread you meant. I found it interesting anyway. Cheers].

@Thomas Gerhart We had the multiple appraisal happen with a FHA buyer on a 2-family flip we sold in Connecticut in the fall of last year. It was actually only 35 days from contract to close which I thought was a great timeline for a FHA buyer. Had we had to wait 60 days to close i might have been a little more upset that we had the 2 appraisals, but since it didn't slow anything down it ended up working out. We have been there where we were waiting longer to close because of the 2nd appraisal and that gets very frustrating. I completely agree.

Timeline wise property was put on the market 4 months after we closed on the purchase, took it 10 days to formally get under contract to sell. So it sold a little more than 5 months after we purchased it on the front end.

Michael Noto, Real Estate Agent in CT (#RES.0799665)
860-384-7570

@Thomas Gerhart I agree with @Chris Mason and think the buyers should look into HomePossible or HomeReady. Many buyer are pushed into FHA loans when they can qualify for a conventional. Also many buyers are not educated by their loan officer on home expensive FHA loans are in the long term. They focus on that awesome rate in the 3's and think they are getting a great deal. You will also see banks quoting FHA rates in the 4's which in most cases is criminal.

813-629-5478

If the buyer is FHA and known from day one, is there anyway to request the second appraisal ASAP? I know the lender is responsible for this, so you are most likely tied to their responsiveness, however you would think it shouldn't hold up the process to order two appraisals, seeing as they know it will be required.

3% down conventional loan options are available .

Loan officers seem to have an easier time approving buyers on fha . When you receive an fha offer call the loan officer and see if they can switch . Usually just a matter of credit score .

I sold most of my flips to FHA. I don't mind the extra hurdles and wait time. Most of the situations require I provide a large buyer credit to close the deal. I look at it as money I didn't have before the transaction. It does make me wonder how people buy FHA if they can't come up with 5% down conventional. Hopefully they make their payments or you get another swing at the property. I think the 2 appraisals are required if your sale price is double your initial purchase (bought for $100k and selling for $200k, etc.).

Originally posted by @Thomas Gerhart :

It seems all of the buyers for my flips are FHA buyers. This has been frustrating on a few levels. FHA will not loan on a property that has changed hands within 90 days so I cannot move quickly. Also my buyers have needed two appraisals due to the drastic price differences in the home over a short period of time which also delays closing as much as two weeks.

Has anyone else had issues with this and or has advice for me? I am trying to really move quickly in this new year and this seems to be my biggest hurdle. I am located in Oregon and usually rehab and sell entry level homes. 

Thank you! 

Rent it out to a good tenant on MTM basis. A lot of entry level tenants won't mind a MTM lease. If you are financing through HML, that would take care of the interest payments for time being, if you are having hard time finding a non FHA buyer.

If you have it listed with a Realtor, make sure that they remove the "Available financing: FHA" from the MLS. This will remove it from any people receiving the listing as a match if they are an FHA Buyer.

Alternatively, establish a relationship with a lender, and have them provide for a comparable non-FHA program, that you can have at the property for showings, so that Buyers have a different option from the beginning.

Lastly, in the event that you do accept an FHA Buyer, have your agent remind the Buyer's agent that a double appraisal will be necessary. That way it can be scheduled accordingly, and won't delay a closing because it was an after thought.

@Thomas Gerhart Each financial institution has their own interpretation of the 90 day flip rule as some banks count it closing to closing others closing to under contract. Always call the lender beforehand on the prequalification form to ask. We personally will accept an offer anywhere from 2-4k lower from a conventional buyer instead of dealing with FHA buyers. If you are rehabbing the best houses in your neighborhood and pushing a new pricepoint as we do this problem will never go away because some buyers will be savvy enough to know they don't want to be the most expensive home on the block. When we flip we try to price at a price we know will sell opening weekend, instead of holding out for a higher price. The market will bid it up anyways.

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