FHA buyers have to be careful when shopping for homes, as the FHA has cancelled their 90 Day Flip Waiver. This waiver allowed FHA buyers to purchase properties that are being resold within 90 days of being fixed and flipped. This means that all FHA buyers now have to wait >90 days to purchase a home that was fixed and flipped by a seller. Buying and selling flipped properties can be a little challenging in today’s market depending on the financing the buyer is trying to get. Here are the different rules in place for buying a flipped property when using either FHA, conventional and VA financing.
FHA Guidelines for Financing Flipped Properties
The FHA have Discontinued their 90 Day Flip Waiver. This waiver allowed FHA buyers to purchase properties that are being resold within 90 days of being fixed and flipped.
Therefore buyers who plan on using FHA financing, will need to make sure their purchase contract and loan application are dated 90 days AFTER the home was acquired by the seller, otherwise it will not qualify for financing.
Another potential issue to look out for, is if there is greater than 100% profit to the seller within 180 days. There are lenders who may ask for a 2nd appraisal to substantiate the value of the home.
In addition, the seller will also probably have to provide proof of all the repairs done to increase the value of the property by 100%.
With 1 in 5 buyers using FHA financing to purchase a home today, it is important to know the different rules in place to qualify with FHA. With its minimum down payment requirement of only 3.5%, easier qualifying rules, and flexible loan programs which also allow co-signers, FHA is helping many buyers finance a home who may have not been able to otherwise. See HERE for additional FHA rules to be aware of.
Conventional Rules for Financing Flipped Properties
What many people do not know, is that conventional financing does not have an anti-Flip policy, so there is actually no limit on the amount of profit a seller can make in any given amount of time when reselling a home.
But, what buyers and Sellers needs to look out for, is lenders who will apply their own set of “overlays”, which are rules a lender will apply on top of regular conventional underwriting rules to minimize their risk on the transaction. For example, there are some lenders who will ask for two appraisals, if the profit to the seller is more than 20% in less than 90 days.
Another issue that comes into play, is when a buyer needs to get financing over 80%, because now the buyer has to qualify for mortgage insurance “PMI”. When “PMI” companies have to get get involved in the transaction, they may want to see more documentation to justify the appreciation on the property, so be prepared to document the value increase thoroughly with supporting documentation, or once again, some lenders may ask for a second appraisal.
Therefore, the secret to funding a flipped property using conventional financing, is to make sure the lender has No Flip Overlays.
VA Guidelines for Financing Flipped Properties
There is also a misconception out there that the VA has their own set of rules for flipped properties, when in fact the VA does NOT have an anti flip rule.
The VA has no limit on the amount of profit a seller can make in any given amount of time when reselling a home, but once again the catch once is, there are lenders who will apply their own set of “overlays” on a flipped transaction to minimize their risk on a transaction..
So it is important ask a lender upfront what their flipped rules are, so you choose a lender who will follow the VA’s flip rules and not make up their own.
We have several VA lenders that we are approved with, who do NOT have any additional VA rules for financing flipped properties.
Address All Concerns Upfront on a Property
A good idea is to address all concerns upfront on all flipped properties. A good rule of thumb for agents and buyers, is to check the purchase date when the seller bought the property, as this will determine many of the rules above.
If the property is being resold within 90 days, a FHA buyer needs to wait 90 days to purchase that property.
Another good rule of thumb for buyers and agents, is to confirm with the lender if they follow regular conventional and VA rules for financing flipped properties, or what additional “overlays” will they apply on a property if it is being resold within 90 days for example.
Doing this homework upfront will ensure the buyer will qualify for financing and there will be no issues getting the transaction closed for all parties involved.
If you have any questions about rates or financing on a flipped property scenario, please do not hesitate to contact me directly at 858-200-9602 to chat.