FHA gives the go ahead for investors to continue to flip houses but will it really help?
The Federal Housing Administration just announced a continued extension of the waiver of the 90 day anti-flipping rule, but before real estate investors get too excited and bet your 2013 income on borrowers using FHA home loans, make sure you have the whole picture.
The latest extension allows homes to be flipped in less than 90 days through 2014. However, there are a number of requirements properties and transactions will have to meet in addition to standard conditions.
- Must be arms-length transactions, with no pattern of flipping the property in the past year
- If the new sales price shows a 20% or more jump all improvements must be documented and support the new value
- When price jumps exceed 20% inspections will be required
Interestingly coverage of the FHA waiver extension by Inman News included a quote from a California Realtor who said most of her clients tend to flip properties for 10 to 12% more, and rarely trigger the 20% rule.
That certainly doesn’t sound like the ticket to big money from flipping houses, but despite meaning more paperwork, overcoming these requirements isn’t all that difficult providing investors have a good handle on ‘subject-to’ values, as well as which improvements will truly increase a property’s value.
Waiving the 90 day rule may sound good, but in reality it is perhaps more politics than anything else. We all know that FHA mortgage loans are becoming tougher and more expensive to get. In fact, you could say the government is purposely discouraging borrowers from attempting to use them to reduce the agency’s market share. So look for other financing backups and don’t exclusively build your model on FHA loans. Besides the availability of transactional funding for 90 days plus and a resurgence in hard money lending opens up flips to a wide variety of buyers.