What is “House Flipping” anyway?
House “flipping” is when someone buys a home at, ideally a below market price, fixes it up, then resells it as soon as it’s been rehabilitated for a healthy profit.
In the past, there has been many instances of collusion and conspiracy to turn huge profits at the expense of those who are less affluent and FHA will have no part of it….So they introduced the “No Flipping Rule”.
Basically, the “No Flipping Rule” says that if a non-institutional (banks are exempt) owner of a home has owned it for less than 90 days, the buyer of the home cannot use an FHA loan to buy the home.
Conventional financing (Fannie Mae, Freddie Mac) does not recognize this rule. However, with the nature of today’s lending environment that requires perfect credit and a large down payment in order to qualify for conventional financing, FHA buyer’s looking to purchase with only 3.5% down are unable to take advantage of buying these homes.
Now, personally, I understand that people can take advantage of any opportunity and usually with their own personal benefit as the ultimate goal. That being said, many of these “investor” homes are unable to qualify for ANY bank financing due to damage to the property.
Investors that move in, pick up the home for a fair price (these are usually all cash purchases), fix them up so that the homebuyer is moving into a nice home with new paint, carpet and who knows what else are doing a great service to homebuyers when the alternative is usually some crappy, trashed, dirty foreclosure home that has housed who knows what types of undesirable vermin and sorts for the past who knows how many months.
Also, many foreclosures are left completely trashed by angry home owners that lost their homes to the bank. This is not a good start for a new homebuyer. Dare I say that at the very least many of these foreclosures are “Icky”. Yes, I said it….they are “Icky”. Who wants to spend the first few weeks or months fumigating, delousing, cleaning, scrubbing, painting, fixing….and spending MONEY to make the home livable.
So, now we get to the HEADLINE:
Fed Lifts No Flipping Ban for One Year Beginning February 1st, 2010
Yes, there are still some basic restrictions that prevent people from blatantly taking advantage and running massive profit schemes, but if you’re just dealing with someone that is buying and fixing homes and not trying to get away with anything….well, today is your luck day!
I know of many private investors that buy one to two homes every few months, fix them up and put them back on the market within a month or two as For Sale By Owner homes.
I am currently working to build a list of these Rehabilitated Investor Homes and make them available to you as a reader of this Homeownership Education Blog.
I think there is a great value here for you, the homebuyer AND the investor that is putting their own money on the line to fix up and resell otherwise messed up trashy houses as clean, comfortable homes.
FHA insures loans, they do not fund loans
Just because FHA is lifting the ban on “flipping” does not mean that investors on the secondary market will buy the loans after they are closed. This can get a little complicated but the simple answer is that the big banks, Bank of America, Citi, Wells Fargo – have to agree to allow lenders to write these mortgages.
Since this was only announced on Friday, January 15th 2010, we do not have word yet about participation from the secondary mortgage loan market.
Listen, I’m not going to bore you with the underwriting guideline changes and all that hooey – If your lender or your Real Estate Agent are not aware of these changes…you probably need to find another Lender or Agent to work with because they’re not up to speed enough to provide you with all of your options.
If you have questions, either give the office a call and speak to any of our Loan Specialists or you can give me a call directly on my cell phone at 714-336-8286. Sometimes it’s much easier to reach me by email, so here it is: ScottS@BroadviewMortgageCorp.com
Happy house hunting….I’m going to put the Good News Stamp of Approval on this news!
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Chris "Doc" Apodaca
Jeff Brown – BawldGuy
Scott Schang
{ 2 comments… read them below or add one }
It is about time they lifted this ridiculous rule.
It is depressing for our poor first time FHA buyers when we go out to look at properties.
See that short sale, it will never close. See that REO, they will only take cash or conventional. See that beautiful fixed up “flipped” foreclosure, FHA won’t let you have it.
Now at least we can add “flipped” properties back to the list of homes our FHA buyers can consider.
So long as the home will easily appraise, I think FHA buyers may even have an advantage with these types of properties. While banks regularly take cash offers over FHA for expedience, I think the investor owners of these “flipped” properties will be much more interested in maximizing their return, which will mean seriously considering FHA offers with a higher net than cash offers.
P.S. Welcome to Bloodhound Blog.
Thanks for your input on this Patrick. I know that from a Real Estate Agent’s perspective you feel the frustration that many buyers feel, with every buyer you work with!
I completely agree with you. There are many all cash investors out there that are actually saving home buyers a lot of money, time and effort by rehabilitating run down foreclosures and putting clean, nice and neat homes back on the market.
It’s absolutely a win/win for all parties and a door opener in this often perplexing real estate market.
Thanks a million for your input!