Have to wait 6 months for another appraisal?

Question

Jeff Bridges · Answer

Those people that buy and flip use A) hard money financing (short term/ high interest financing) B) their own cash or C) Private lenders. You can't use an FHA loan as a short term financing tool to force appreciation, then immediately refinance in 3 months. No (normal) homeowner would need to do that. Your essentially saying something along the lines of they can do it, why can't I? These folks can do what they want with their money or are paying higher interest rates in exchange for short term financing until the renovations are completed, then they put in long term financing at more favorable terms. If you have your own money, you can do what you want too, but since its not your money, the FHA loan terms limit users from abusing these favorable and low interest/low down payment loans. FHA is a federal loan program designed to help homeowners afford to purchase homes with low interest rates and low down payments, not flippers line their pockets. Sorry if these terms are not to your liking, but FHA loans are not for your investing benefit and are not to be used in the manner that you are seeking. You can use FHA loans as part of your long-term strategy to buy and hold and acquire, but it is not designed to be short term financing and definitely not a tool to support flips.

Luis Roel · Answer

You don't HAVE to but most lenders ask you to do so because that's the time it takes for the property value to "update" and stabilize so to speak. And because what you'd be doing is refinancing to pull out equity and lenders will only lend you a portion of that equity, you're definitely going to want that value to be as high as it can possibly be.

Specially when you're talking about an owner occupied property and most lenders will lower what percentage of that equity you can take out because of that fact.

What gives you the confidence that it's worth what you say it is? Not to criticize you or say this is you but many of my clients have a mistaken sense of value when it comes to their property. This always leads to heart break after the evaluation comes in.

What flippers do is a whole different transaction. Flippers don't have to wait that long because of a few things. Usually a lender is able to take a first position lien on the property meaning less risk. The risk is also less because nothing is owed on the property that's being purchased so if a borrower defaults, the finance company is able to more easily recoup its losses. To calculate the money they're going to lend out, the evaluation also allows the finance company to estimate what a house would be valued post-rehab and lend on a portion of that figure knowing that the borrower will profit from the property in a short time and pay off the loan.