In my last article, I talked about down payment, , upfront mortgage insurance premium, monthly mortgage insurance premium, and the easier qualifying guidelines of the FHA first time home buyers loan.
Today we talk about one of the more common pitfalls to be aware of when using the FHA purchase loan.
One that I run into often is what was formally called the “flipping rule”. A “flipped” home is defined as a property that is purchased and then resold at a profit within a certain, usually short period of time.
The rule formally stated that if the home you were making a offer on had been owned by the seller for less than 90 days before you were went into escrow you could not use the FHA loan as the property was considered a flipped property. This rule has been repealed but it still holds some weight with lenders.
With so many foreclosures and investors coming into the market looking to buy these properties, BMCD reconsidered and on February 1, 2010 this rule was waived. The waiver is only good for one year at this point and if there is a significant increase in defaults on these loans in particular the waiver can be pulled at anytime.
How it can now affect you? Lenders and their investors are often still leery of properties that fall within that 90 day period, especially if the current sales price is over 19% more than the previous sales price. If the sales price is over that 19% increase most lenders want to see a justification (in the form of receipts) to validate the increase in sales price.
Every loan has it’s strong and it’s weak points, the flipping rule issue is or can be one of the very few weak points of the FHA program. It is however a issue to be aware of. Working with a great Realtor as well as a great loan officer is the best way to not have to worry about this potential pit fall at all.
Do you have questions or an experience to share about the FHA flipping rule? Please comment below or share your story so that others will benefit from the discussion.