New challenges in flipping properties

Thanks to Mary Adams at Element Funding for the updated information. Element Funding is an example of the full-service I am able to offer through John R Wood, Inc. Realtors.

I wanted to share as this can, and has, become an issue for some buyers - as well as investors looking to purchase and then quickly flip a property.

A sale is considered a "flip" by lenders when title has been transferred (via sale or otherwise) within a 12 month period.

The mortgage industry, including the agencies that ultimately provide the underwriting for these loans, are very sensitive to property flipping. They know that historically this can lead to "artifically" inflated values.

Here are some updates on how various agencies are handling property "flips":

FHA has very specific guidelines- In a nutshell:

ü Only owners of record can sell properties that will be financed using FHA insured mortgages (in other words... someone who is currently 'under contract to purchase" a home cannot go to contract to sell the property to another buyer)

ü Any re-sale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing

ü Resales that occur between 91 and 180 days- where the new sales price exceeds the previous price by 100% or more - FHA will require additional documentation validating the properties value, including a 2nd appraisal. In addition, the rule provides flexibility for FHA to examine and require additional evidence of appraised value when properties are re-sold within up to 12 months.

FNMA/ FHLMC- Conventional lending would require indepth review of appraisal if there has been significant increase in sales price from when the current owner purchased (within 12 months). They will also want to document any improvements made to the property since it's purchase to support the increase. There are no specific time limits on how long the prior owner would have to have owned the property prior to selling as FHA requires. Ultimately, the lenders are reviewing the appraisals on these properties with a fine toothcomb.

USDA lenders are also reviewing these properties in much the same light as conventional lending.