Investor · Charlotte, NC · Member since 2011 · 58 posts · 9 votes
So my flip was finished in 60 days total, from purchase closing to going under contract to my buyer. It was about $30k or so in rehab cost. The buyer is using an FHA loan. The first red flag was the banker said, 'a 200% increase in price in 60 days, no way!' So we sent over before pics and the rehab cost schedule.
The second issue is the FHA loan itself. I think they require the items on the inspection report to be fixed prior to closing (a friend with lots of flip experience told me he thought so). So does anyone know if this is true??? I know the house is a great product for the buyer, and I'm okay fixing a few small items they pointed out. But do I HAVE to, or the bank ad FHA get to kill the deal??? The sales price is $114k which is entry level in my market, but the house has awesome features no 114k house usually comes with; its a real gem.
Can FHA and the bank kill my deal on the home inspection items? How tough can I negotiate with the buyers on them?
First problem, FHA requires at least 90 days from your purchase, until the FHA buyer goes into contract for it. Do you have that? FHA has some requirements for condition, but they are basics like the roof being in decent shape, no wood rot, no "health and safety hazards", components up to code,etc. but they don't require every little nit picky thing a home inspector may want to come up with. The condition report by the FHA appraiser is the only one that matters, as it will point out any required remedies. Any decent, marketable rehab should meet FHA guidelines.
FHA will generally require justification for the big price difference but I've gotten around that with showing scope of work and in some cases invoices for work.
Regarding the inspection repairs, there are 2 inspections. The buyer will do their home inspection and you will need to negotiate with them the same as you would regardless of financing. But... the FHA appraiser also does a small property inspection in addition to determining the value and yes you will have to do their required repairs in order for the buyer to get the mortgage. Pealing paint is one of their big issues so if you have any exterior wood that is pealing, expect to do that. Earlier this year, I had to redo a driveway for an FHA buyer since the concrete was cracked. The buyer didn't care about it and neither did the city inspector but since the FHA appraiser required it as a condition of the loan, we either fixed it and moved forward or had to look for a new buyer.
For most rehabs, the FHA requirements/repairs are minimal but they do come up.
First problem, FHA requires at least 90 days from your purchase, until the FHA buyer goes into contract for it. Do you have that? FHA has some requirements for condition, but they are basics like the roof being in decent shape, no wood rot, no "health and safety hazards", components up to code,etc. but they don't require every little nit picky thing a home inspector may want to come up with. The condition report by the FHA appraiser is the only one that matters, as it will point out any required remedies. Any decent, marketable rehab should meet FHA guidelines.
So I do not have the 90 days of ownership before contract. i am using hard money and went to work on it ASAP to move it along fast. So it was about 60 days total. How will this affect the deal? I gave them a 30 day due diligence period, and then another 15-20 days after that until closing. So in all, you can 60 days to 45 days to get 105 days total, give or take.
@Robert Shoffner No. The FHA guidelines are quite clear, something like "....a minimum of 90 days from the settlement date of sellers acquisition until an Executed Contract that results in FHA financing." NOT 90 days until the buyer's closing. You can google it up, and read it off FHA/HUD's own website. I think your buyer's loan officer is asleep at the wheel.
We just sold a flip to an FHA buyer. The contract cannot be written prior to 90 days from the date of recording of the deed on your purchase. There was a gray area here for us because the guidelines actually state the date the property was acquired, and the sale ended up going through after an appeal to FHA, but I will def be counting from the date of the deed recording and not our closing date on future FHA transactions.
Also, you will be required to pay for a separate appraisal as the seller. This ran us approx $500.00. The guidelines state:
"A lender must obtain a second appraisal by another appraiser if:
the resale date of a property is between 91 and 180 days following the acquisition of the property by the seller, and the resale price is 100% or more over the price paid by the seller when the property was acquired. The cost of the second appraisal may not be charged to the borrower."