FHA Flipping Guidelines

Flipping is a term that refers to a purchase and fast resale value of a home for a higher cost so as to create a profit. Most often, the higher cost is due to improvements made to the house like remodeling, updating or cosmetic changes. Other times it’s the end result of a distress sale or fraud. The Federal Housing Administration (FHA) frowns on flipping and takes a seller to own a home for 90 days until he could finish a sale contract on the house with an FHA loan. However, as 2008, the FHA has backtracked on that position in certain circumstances.

June 2006 Guideline

Flipping has a dark side. In the early to mid-2000s, many areas contained pockets of homes with inflated values due to the prohibited acts of particular appraisers and mortgage brokers. They would have a purchaser purchase a home for a single cost, have a fraudulent appraiser do an appraisal on the home for an overstated value and immediately flip the home to another buyer at a considerable profit. The broker could then split the profit with the purchaser and the appraiser. The FHA place the 90-day rule in place on June 7, 2006 to discourage this type of practice.

June 2008 Waiver

On June 9, 2008, the Department of Housing and Urban Development (HUD) signed a bill which relaxed the 90-day wait interval for foreclosed homes owned by a creditor or holding company in the hopes of decreasing the number of vacant foreclosures across the country. The waiver was in effect for a calendar year, but in 2009, HUD expanded the waiver until May 10, 2010. The objective of the waiver was supposed to hasten the sale of foreclosures, particularly starter homes. The seller had to be the mortgage holder in the time of the foreclosure and the purchaser had to become an owner-occupant.

September 2009 Waiver

On September 14, 2009, a 1-year waiver was given to nonprofit and for-profit associations which bought foreclosed or abandoned possessions under the HUD Neighborhood Stabilization Program. This program sought to reduce the negative effects of foreclosures and abandoned properties in at-risk neighborhoods. Both local and state agencies worked with HUD and the program participants to ensure that the participants bought key properties under the application guidelines.

January 2010 Waiver

On January 15, 2010, HUD went further and relaxed the 90-day waiting period for investors until February 10, 2011. Many foreclosure homes sell in an”as-is” state and require repairs so as to permit them to qualify as an eligible property under FHA guidelines. Investors are a necessary part of getting these homes in the proper condition for buyers. The FHA hunted to encourage investors that bought and rehabbed possessions but could not afford to sit on the empty homes for 90 days prior to marketing them.

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