FHA 90-Day “Anti-Flipping” Rule Waived - Yes and No

Many of you have gotten excited about the FHA “waiving” their 90-day “Anti-Flipping” rule beginning February 1, 2010. But hold on a second because that’s not what really happened.

In case you don’t know, the FHA “Anti-Flipping”  rule prevents you - the ready, willing, able and honest home buyer - from buying a perfectly good and renovated home that was last bought within the last 90 days (bank-owned properties do not fall into this category). It has also prevented investors who have bought, renovated and flipped a property within the last 90 days  from being able to sell it to home buyers that are using FHA financing.

Sounds a lot like a “lose-lose” situation, doesn’t it? That’s because it is.

Well, the FHA has realized that it’s hurting home buyers and has made some changes to their “Anti-Flipping” rule. No - they have not canceled, repealed, gotten rid of or any such permanent thing when it comes to the rule. They have simply made some temporary small changes to the rule which allow for a small window of breathing room. But it’s ain’t much of a window.

Here are the highlights of the changes to the FHA “Anti-Flipping” rule…

The exception to the FHA 90-day “Anti-Flipping” rule is only for properties that do not have a 12 month history of flipping. The properties must have all the renovation and rehab closely documented. And the increase in sales price must be less than 20 in order for the property to qualify. If the sales price is 20 percent or more, a full home inspection and 2nd appraisal must be conducted.

And here’s the kicker…

Banks and financial institutions must adopt this exception before you, the home buyer or investor, can take advantage of it. So far, I have yet to hear of any bank or financial institution adopting it. And even if they do, they may add their own extra rules to the exception on top of the FHA’s so who knows what the final “exception” to the rule will be - if there’s one at all.

Sorry to burst your bubble folks, but better you know the real truth now rather than finding it out the hard way later.

If you have specific questions or concerns as a home buyer or investor, email or call me - 703.582.6900.

You can also read the HUD announcement and get further details regarding the changes by checking out the document below (click here if you don’t see the HUD press release regarding changes to the FHA 90-day “Anti-Flipping” rule below)…

Changes to FHA 90-day Anti-Flipping Rule 2010 -

Buying a Foreclosure or Short-Sale Using FHA Financing

Many people have asked me if it's possible to purchase a foreclosure or short-sale property using FHA financing. For some people, the question has never crossed their mind. Well, it should.

Why? Because foreclosure and short-sale properties are sold "AS IS". This means that the seller (bank) is unwilling to make any repairs on the property and "what you see is what you get" (click here for more information on what "AS IS" means).

But FHA financing includes an FHA appraisal/inspection which is different from a traditional appraisal. A traditional appraisal is a valuation of the home in it's current state as compared to similar homes that have recently sold. The person doing the appraisal is an appraiser in the traditioanl sense.

An FHA appraiser is someone who has been certified by the FHA to do appraisals on properties where the buyer is going with FHA financing. Unlike a traditional appraisal, an FHA appraisal is also an inspection of the property and provides an "inspection report" as part of the appraisal. The FHA appraiser will go through the property looking for defects that he/she may decide must be fixed or remedied in order for the property to meet FHA standards.

In other words, if the buyer or seller don't remedy the defects the FHA appraiser cited, the financing will not be approved.

This presents a potential problem for both the buyer and the seller. Should the FHA appraiser say that things need to get fixed in order for the financing to go through, the seller may be forced to fix those items in order for the sale to go through. But even though the bank wants to get the property off of their books, fixing anything whatsoever goes against the very basis of "as is". 

But that's IF the seller accepts the buyer's FHA-financed offer in the first place.

Banks don't like to see FHA financing on offers due to the issue I described above. Many banks will reject offers with FHA financing. Some will counter with having the buyer use conventional financing. A few banks may accept FHA financing, but don't expect it. Even if the bank accepts an FHA-financed offer, they may try to limit the dollar amount of the repairs they will make.

If the bank agrees to your FHA-financed offer without a limit to the amount of repairs, you may want to go buy a lotto ticket.

I'm not saying that getting an FHA-financed offer accepted is not possible. I'm saying that the chances of doing so are much smaller than had you gone with conventional financing. And there's no blanket policy - the same bank may reject FHA financing today and accept it tomorrow. Each and every property should be handled on a case-by-case basis.