ANNOUNCED: Potentially great news for house flippers this week as the Federal Housing Authority announced they would continue their suspension of their “90-Day Anti Flipping” rule until December of 2014 for all FHA insured loans.
Background to the 90 Day Flip Rule:
The “Anti-Flipping Rule” was enacted in 2003 and was aimed at curbing what the FHA called “Property Flipping,” in which “a property recently acquired is resold for a considerable profit with an artificially inflated value, often as the result of a lender’s collusion with an appraiser.” (Source: FederalRegister.gov)
The Anti-Flipping rule affected those mortgage borrowers who were using FHA-insured mortgages to get their loan. The Anti-flipping rule simply stated that the FHA will not insure a mortgage if the seller had purchased the home within ninety days. FHA-insured loans are one of the most popular loan choices in the lending world- especially for first time home buyers- because of their low down payment (3.5%) and credit requirements.
In 2010, the FHA suspended this rule due to the struggling economy in an attempt to move the excess inventory of homes off the market and move buyers into those homes. According to the Department of Housing and Urban Development, “HUD believes that it has made a significant contribution to neighborhood stabilization.”
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The Specifics of the Anti-Flip Rule Suspension
The suspension of the Anti-Flipping Rule contained several key rules that must be still be adhered to in order for the FHA to insure the loan. Those rules are:
- There must be no “identity of interest” between the buyer and the seller (also known as being “arm’s length.) In other words, the buyer and the seller cannot be in cahoots together.
- If the sale price is greater than 20% above the seller’s acquisition price, there must either be records provided that document the reason for the increased value or a second appraisal must be performed by an FHA-approved appraiser. Additionally, if the sale price is greater than 20% the seller’s acquisition price there must be a property inspection performed on the property (though the inspector does not need to be an “FHA inspector.” If the inspection report notes that certain repairs are required due to “health and safety” then those repairs must be completed prior to the closing of the sale.
- Only “forward mortgages” are eligible for the waiver – not reverse mortgages (HECM.)
What the Anti-Flipping Rule Suspension Means for You
This news comes as a relief for both investors and home buyers, as FHA borrowers can have full access to the homes on the market – including those recently “flipped” by the seller. For house flippers, timing is often one of the most expensive factors contributing to the bottom line -as the expensive costs of financing property flips can often mean the difference between success and failure.
How does this news make a difference for you and your business? Leave a comment below and join the conversation!
Photo: Nicholas A. Tonelli