The number of house flipping shows we see on cable tv today really points to the popularity of real estate flipping. House flipping can be the perfect way to grow one's investment and even earn a living. However, there are some recent changes in FHA house flipping laws which can effect how you do business.
These new laws have been created because there are also a lot of scammers out there trying to con anyone investing in flips. There are an incredible number of people out there loosing their homes these days. So much so that there are now some FHA rules in effect to protect the market.
The new FHA House Flipping Laws are pretty involved reading but here's the basic points:
Property sold within 90 days purchase won't be able to get financing with FHA mortgages using HUD insurance.
Those selling a property within 91 and 180 days of purchase must record the resale value if it's selling for more than the last purchase price.
If the property is selling within 91 days and 12 months of purchase, HUD may require additional documentation of the home's market value.
With these new rules from the FHA you'll have some trouble getting buyers for your house flip. It basically means that you'll need to find buyers for your house flips that aren't using FHA backed loans. These rules are also commonly referred to as 'seasoning issues'. You'd have to hold the property for at least three months, or let it season before you could sell it to a buyer with financing of this type.
There are only three exceptions to these rules. They are:
1. Selling corporate housing purchased during the relocation of an employee
2. Selling HUD owned real estate property
3. Selling a newly build house
These exceptions don't typically apply to real estate house flipping, except maybe the HUD owned property. However, there are lots of other buyers using more conventional loans to purchase property.
Why Create these Rules?
In the past few years, The US Department of Housing and Urban Development (HUD) noticed that there were quite a few homes going into foreclosure. Most of these foreclosure homes were owned by first time low income homeowners who had government backed loans from the FHA, VA or Fannie Mae. These are all loans protected by Principal Mortgage Insurance (PMI) which is provided by HUD.
When homeowners lost their homes to foreclosure, HUD ended up covering the remainder of the mortgages through their government backed insurance programs. HUD has passed these FHA house flipping rules to protect these homeowners and themselves from losing money. You can see the rule in a document called, 'Prohibition of Property Flipping in HUD's Single Family Mortgage Insurance Programs; Final Rule; 24 CFR Part 203, Doc. No. FR-4615-F-02.' You can usually get them from the government's Federal Register Site.
Advice for dealing with Seasoning:
Sell to Buyers Non-Conforming Loans. There are still a lot of other mortgages out there that don't require or use PMI. These are conventional loans made to buyers who can make large down payments and are more likely to purchase a very nice remodeled house anyway.
Document all costs and profits. Keep all of your receipts and creating a personal record of whom you paid for what and the improvements made to each property.
Lease-to-own your house flips. The FHA house flipping rules only apply to recently purchased homes. Let the buyer lease-to-own the property and you'll avoid seasoning issues entirely. Since, the homeowner won't be applying for a mortgage to pay off the property; you don't have to worry about them being denied because the property was recently purchased.
There are still plenty of ways to flip a house even with these new house flipping rules. These rules help wholesaling investors and HUD by helping buyers keep their homes when they get mortgages.
Colin Egbert is an experienced Real Estate Investor with plenty of short sale techniques to aid fellow investors in their quest to succeed and make huge profits. He's the author of the ebook "Getting Started with Short Sales" providing the tools needed to start your own real estate investing business. Colin is also the CEO of Realestateinvestor.com a website dedicated to helping investors make the most of their business.
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