Sky Minor is a real estate practitioner in Los Angeles, California. Contact Sky at 310-709-8283.
Friday, July 22, 2011
Using an FHA loan to buy a flipped property? Here are the rules you'll need to abide by.
There is a lot of “mis information” regarding the financing of FHA flipped properties. Whether you an agent listing a “flip” or an agent representing a buyer….you need to know the rules.
Contributing to the mis information is many investors have “overlays” (additional criteria) that hinder the property sale.
Here are the minimum criteria for FHA flips.
FHA Flip ≤ 30 Days since Seller Acquisition
• Not allowed unless seller meets one of the following exemption criteria: • Sales by State and Federally chartered financial institutions and government sponsored enterprises (Fannie and Freddie). • Sales by HUD of its real estate owned. • Sales by Local and State government agencies. • Sales by Non-profits approved to purchase HUD REO properties. • Sales of properties acquired through inheritance – Must document seller’s inheritance of the property. • Sales of properties acquired by employers or relocation agencies in connection with relocations of employees. • Both lenders and property disposition firms they hire or with whom they are affiliated are temporarily exempt from the 30-day lock-out period. Temporary exemption is not permitted for private individuals, including land contract holders. • Documentation proving the selling entity is exempt is required. • If seller is a subsidiary or vendor hired by an exempt lender, the relationship between the two entities must be documented. • Individuals, companies or investors who purchase foreclosed properties and sell them are not eligible for this exemption. • For profit or non-profit entities that purchase abandoned or foreclosed properties using Neighborhood Stabilization Program funds are temporarily exempt from the 30-day lock-out period Seller must be a duly incorporated entity • A copy of the written agreement granting the seller NSP funds is required • Non-arms length transactions and transactions having an identity of interest cannot be sold until 91 days after the seller acquired the property. The borrowers must execute the sales contract 91 days or later after the seller acquisition date.
1 to 90 Days since Seller Acquisition
• If the property is being sold within one and 90 days of the seller’s acquisition date and the new sales price is 20% or more higher than the seller’s purchase price, all of the following are required • A second appraisal ordered in compliance with FHA and Appraiser Independence Requirements - Both appraisals must support the value and/or provide evidence that repairs and/or renovations were completed And • A property inspection completed by an inspector who has no interest in the property or loan transaction. The inspector must be paid by the lender. The borrower may reimburse the lender at loan closing.
• A fully executed Property Inspection Certification prior to the loan closing. • The borrower may not be charged for the appraisal • The following sellers are exempt from the second appraisal required for properties being sold within 90 days of acquisition for 20% or more higher than the seller’s purchaser price: • HUD and other government agencies • State and local government agencies • State and federally chartered financial institutions • Government Sponsored Enterprises (GSEs) i.e. Fannie, Freddie Mac • Non-profit organizations approved to purchase and sell HUD REO SFR properties. • Employers and relocation agencies that purchased the property in conjunction with the relocation of an employee. • Sales of properties located in presidentially declared federal disaster areas. • Sellers who acquired the property through inheritance.
91 to 180 Days Since Seller Acquisition
• If property is being sold between 91 and 180 days of the seller’s acquisition and the sales price increases by 100% or more, a second FHA,appraisal is required (this applies to all purchase transactions, regardless of seller’s property flipping exemption status). The following criteria apply to these second appraisals: • If property is a bank-owned REO, the selling bank may provide evidence of foreclosure amount. If new sales price is not 100% more. than the foreclosed amount, the second appraisal is not required. • The borrower may not be charged for the appraisal. • Maximum loan amount must be based on the lower of the two appraised values. • Appraisal must be ordered in compliance with FHA and Appraiser Independence Requirements.
12 Months since Seller Acquisition
• If property was purchased within the previous 12 months and the new sales price increases by 5% or more, documentation to support,..the increased value including any rehabilitation or remodeling is required. A second FHA appraisal may be required at the underwriter’s discretion.