With the Philadelphia spring housing market upon us I thought it would be a good time to review the guidelines for getting a mortgage on a flipped property. Essentially a flip is when an investor buys a property and then sells it at a profit within a short time frame. Flips tend to make lenders cautious because these types of transactions historically have had higher rates of default – more fraud involved, inflated property values, etc. These transactions can be difficult to close but if you know the rules it gets easier.
Conventional mortgage flip rules are relatively straightforward – a resale on a property when the seller is owner of record 90 days or less the loan is a decline. A resale of a property when the seller is owner of record 90-180 days is acceptable with 2 full appraisals and will typically be very closely reviewed, especially if the loan requires mortgage insurance.
FHA loans also have a prohibition on buying properties that were bought by the seller in the past 90 days. But there is a waiver in effect through December 31st 2011 that will allow flips to close. There are some conditions – the transaction has to be arms length (meaning not between friends or family) and if the seller is making more than 20 percent of their original purchase price, there are more complicated conditions that need to be met. Read the entire notice: Temporary Exemption from Compliance with FHA’s Regulation of Property Flipping (pdf)
While FHA has waived the rule for one year not all lenders will also waive their flip rules which are often applied to all mortgages. One more reason to use an experienced Realtor who knows the ins-and-outs and who has a good working relationship experienced mortgage brokers. It could mean the difference between buying the home you want or being denied a mortgage.
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