The present regulation [Regulation 24CFR 203.37a(b)(2)] that applies until February 1, 2010 states that a mortgage for a property will not be eligible for FHA insurance if the contract of the sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller. In simple terms, flipped properties cannot be purchased with an FHA loan for the first 90 days. The waiver (planned for 1 year) allows for a lift in the 90 Day seasoning requirement thus opening up a broader market for home buyers.
The waiver will take effect on February 1st, 2010 but is limited to those sales meeting the conditions listed below.
Condition 1:
All transactions must be arms length with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
Underwriters will be looking for the following:
1. Seller holds title to the property
2. LLC’s, corporations, or trusts serving as sellers are operating in accordance with applicable state and federal law.
3. No pattern of previous flipping activity (multiple transfers) within the last 12 months.
4. The property was marketed openly and fairly, via MLS, auction, FSBO, or developer marketing
5. Any contracts with an “assignment clause” may be red flagged.
Condition 2:
Sales price of the property is 20 percent or more over and above the sellers acquisition cost, the waiver will only apply if the lender:
1. Justifies the increase in value by retaining the loan file supporting documentation and or a second appraisal wich verifies that the seller has completed sufficient legitimate renovations and repairs.
2. Orders a property inspection and provides the inspection report to the purchaser before closing. The lender can charge the buyer for the inspection. No other party can pay for the inspection besides the lender.
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