FHA buyers interested in purchasing a “flip” property (an investor purchased home, usually rennovated, then resold in a short time), faced a major hurdle. FHA would not consider a loan for a flip home until the 91st day after the investor purchased the property. This 90 day flip rule essentially only allowed the investor to resell to cash buyers or those obtaining conventional financing within the first 90 days of the investor’s purchase.
Most flip homes are purchased at the foreclosure auction where the investor can buy low enough to justify making improvements and still sell at a reasonable profit. The 90 day rule hampered such resales, slowing down the turnover of foreclosures back into good homes for new buyers, many of which are using FHA financing.
HUD has just announced that they are temporarily waiving the 90 day rule under strict conditions for one year starting February 1, 2010. The conditions that have to be met include:
- All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
- In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
- The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Details of the policy change are in this HUD document.
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