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FHA Flip Waiver in Orange County, CA

FHA Property FlipsIt’s a great time to invest in real estate! Seasoned investors and new real estate enthusiasts are eager to seize today’s opportunities. Distressed properties and market declines allow investors to acquire properties at deep discounts. Some investors buy and hold while others like to buy and sell. Buying, fixing and selling immediately thereafter is referred to as flipping. Television has made property flipping quite popular.  But before you become Orange County’s next great property flipper you should know the lending restrictions.

Seasoned property flippers know that prospective buyers getting home loans on their properties have an extra set of hurdles to overcome. Many lenders won’t allow loans on flipped properties because of price gouging and predatory lending concerns.  A flipper must wait 120 days from the date they took title before a buyer can get a conventional loan on the property. FHA mandates a waiting period of 90 days. The purpose of the anti-flip guidelines is to preclude the practice of artificially inflating home prices. Anti-flipping guidelines do not pertain to Fannie Mae, Freddie Mac, HUD or federally chartered banks.

However, on January 15, 2010, FHA changed it’s course. “In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties.” This policy is referred as the FHA flip waiver. It allows for the resale of flipped properties by investors. The FHA flip waiver also sets the guidelines that lenders must follow to qualify Orange County buyers. It is indeed temporary but has been extended twice thus far. Most recently, the FHA flip waiver was extended through December 31, 2012. However, property flippers may not have an FHA option for their buyers after this deadline passes.

Here’s what the FHA Flip Waiver requires:

  • The buyer will need a 620 + credit score.
  • The date of acquisition is considered the seller’s settlement on the purchase of the property. The re-sale date is the date that the sales contract is executed. The period of time in between is the gap that FHA considers when categorizing a property as a flip.
  • A HUD-1 settlement statement or trustee’s sale receipt will be required to document the seller’s acquisition date and purchase price.
  • If the acquisition price is 20% or less over the price paid by the seller than one FHA appraisal is required.
  • If the acquisition price is greater than 20% over the price paid by the seller than two appraisals are required along with a home inspection.
  • A list of repairs will need to be given to the appraiser by the seller.

Standard FHA guidelines can require a 2nd appraisal on properties flipped between 91-180 days. If the purchase price is 100% or more than the seller’s acquisition price, the second appraisal will be necessary.

Flipping properties can be very rewarding. That’s because investors who flip properties take considerable risks. There are no guarantees. The best way to eliminate risk and increase reward is to learn as much as you can. Know your property, know the neighborhood, know the numbers and know the lending guidelines. The work may be complete but the profits aren’t earned until the home is sold.  Since 70% of homes have a mortgage you’ll need to know how to screen your prospective buyers. The FHA flip waiver is a tool for investors to turn their properties quicker.

To learn more about the FHA flip waiver and how you can take advantage of it here in Orange County, please contact me.

Scott Storace


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