Top 5 Things New Home Buyers Should Know About The New FHA Anti-Flipping RulesMarch 23,2010 On February 1st, 2010 the Federal Housing Administration (FHA) took a major step by temporarily waiving what has become known as the 90-day anti-flipping rule. Under this rule, homebuyers could not use mortgages insured by the FHA when purchasing homes that private sellers owned less than 90 days. But the recent action by the FHA could make it easier for homebuyers to purchase recently foreclosed homes. This move is welcome news to new home buyers who find FHA loans their only option due to today's tightened lending criteria. Originally conceived as a way to help curtail mortgage fraud, the anti-flipping rule frequently stood in the way of investors trying to make an honest profit rehabbing and quickly reselling homes to qualified buyers anxious to purchase them. Temporarily relaxing this rule for one year should give many previously shut out borrowers and first-time home buyers a better chance to purchase affordable homes. Here are a few restrictions associated with the newly-relaxed rule that interested buyers should know about: 1) The transaction must be an arm's length deal meaning that buyers, sellers and other involved parties should not be related or involved in business or other questionable relationships. 2) A purchase price that is 20 percent higher or more than the amount the investor paid to acquire the property will require documentation and justification of the higher price to protect against inflated values. 3) The temporary waiver excludes the Home Equity Conversion Mortgage for Purchase program; it only applies to forward mortgages, not reverse mortgages. 4) The 90-day period could exceed 90 calendar days, but could also be less. The clock starts the day the sale was recorded and ends on the day a contract for purchase has been signed. 5) The waiver, which went into effect on February 01, 2010, is planned to continue for a full year. The FHA can however, extend this waiver and it can withdraw it at any time. The FHA will closely monitor defaults and mortgage insurance claims associated with these loans. Should it determine there's been an unacceptable increase, it will decide then whether to end the waiver. What do lenders think? The opinions on the waiver are across the board right now. Some feel the effects will be minimal. Some haven't determined the best way to handle the waiver. And others have announced their intent to allow qualified borrowers to acquire homes rehabbed in less than 90 days using FHA loans, provided the 20 percent price rule described above has not been exceeded. A quick look back Shoddy arrangements and swift sales at inflated prices to unsuspecting buyers are the reasons the anti-flipping rule went into effect in the first place. However the rule didn't apply to properties that nonprofits and government agencies sold. So buyers with FHA insured loans could purchase these properties without waiting 90 days. But they couldn't purchase homes that private investors bought and fixed up until after 90 days. The waiver ends this distinction so now buyers can use FHA loans to purchase HUD-owned, bank-owned and privately-owned properties. Although the FHA can end the waiver if it identifies an unacceptable increase in fraud, real estate experts don't see this happening, especially considering today's stricter lending environment. Gone are the once-popular drive-by appraisals. Now that lenders scrutinize appraisals, the risks associated with fraud should be much less than they were previously. The bottom line is this: Just because a property is resold in three months or less doesn't mean fraud or predatory lending is involved. That was then. Today, buying homes and rehabbing them for quick sale is seen in a more positive light because the process can help revitalize communities hard hit by foreclosures. If you're interested in buying an affordable home using the best FHA home loanavailable and moving in quickly, now's your chance. So start looking! |
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