Wow, I never thought my blog post on “Good Flippers” would have such an impact. I posted it Friday morning and then that day FHA waives the 90 day flipping rule! Ah, the power of the pen!
Okay, so maybe that’s just a coincidence, but the both the article and the FHA waiver make the same point – flipping real estate is an important part of the economic recovery!
Even HUD gets it:
In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time. HUD: Waiver of Requirements of 24 CFR 203.37a(b)(2)
Current HUD regulations provide that a mortgage for a property will not be eligible for FHA insurance if the contract of sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller. This 90 day period is often referred to as the “seasoning requirement”.
However, effective February 1, 2010 (for a period of one year), the 90 day seasoning requirement will be waived provided that:
- the transaction is arms length; and
- a flip spread of more than 20% must be justified by verification of repairs or an explanation of the increase in property if no work was done.
This is tremendously positive news for “Good Flippers” and recognizes the value that we bring to the economy as I discussed in Friday’s post. The waiver explicitly recognizes that not all increase in value is due to physical repairs and provides room for increases in value (even above 20%) “in cases where no such work is performed”.
To help facilitate the return of repaired and habitable properties to the market in a timely fashion, additional exemptions to the 90-day resale restriction period must be granted for the purchase of the properties by investors. This policy change will help to sell properties that may otherwise remain vacant for up to 90 days, while offering affordable hosing options to buyers wishing to use FHA-insured financing. HUD: Waiver of Requirements of 24 CFR 203.37a(b)(2)
The waiver specifically notes that all other guidance concerning property flipping remains unchanged, so you still have to understand how to be a Good Flipper.
