Thursday, April 1, 2010

90 Day Fix and Flip Rule

You know how fix and flipping works in a cynical world, right? Basically. . . . investors buy a craptacular house at foreclosure auction or elsewhere and do no substantive repairs. They slap a thick coat of paint on everything and install cheap new carpet, then resell it as "Remodeled!" with a seriously  jacked up price.


Traditionally, the FHA had a rule in place stating they would not fund buyers who were purchasing a property the seller owned for less than 90 days. This was designed to protect buyers (and the government backed money they used to purchase) and discourage excess profiteering by fix and flip investors.


Some weeks back, the FHA reversed themselves in this area by announcing a new policy that's generally known in the industry as "The FHA Flipping Waiver."


FHA changed it's policy to help the market in clearing some of the excess foreclosure properties for sale which are often holding down pricing at artificially low levels. I don't know how it worked around the rest of the country, but my opinion is that Fix and Flippers are basically, usually helpful here in metro Phoenix Arizona.


Lenders reserve the right to have additional regulations, above and beyond what FHA guidelines say. It's taken some time for these lender 'overlays' to shake out into a coherent whole but it has finally happened.



What the Heck Does this Mean to Me, A Buyer?


The general rule of thumb if you're shopping for a home and you're looking at fix and flips is this:  you won't be allowed to use an FHA mortgage to buy if the seller of the home you love has




  • Owned it for less than 90 days AND

  • Has jacked up the price more than 20% over his/her purchase price

  • Also, don't have any sort of pre-existing relationship between yourself, the buyer, and the seller


If the investor has owned the home for less than 90 days and it's priced 20% or more over the investor's purchase price, you could potentially still buy the home, but you can't use an FHA mortgage to do it. That means a 'conventional' mortgage, which means a higher down payment than the FHA 3.50%. Plan on 10% to 25% cash down payment if you want that spruced up fixer flipper home.