FHA Property Flip Guidelines for Properties Owned Less Than 90 Days
Here are the guidelines as it pertains to a FHA mortgage:
1. All transactions must be arms length. There can’t be any identity of interest between the buyer and seller or other parties to the sales transaction. In order to ensure this the documentation must be reviewed to determine the following: a) the seller is the owner of record, b) LLC's, corporations or trusts that are functioning as the sellers were established and operated in accordance with applicable state and federal law, c) no pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-months time frame as evidenced in the real property search, chain of title or title binder and d) the property was marketed openly and fairly, by MLS auction, for sale by owner or developer marketing (watch for any reference to “assignment of contract of sale” as this may be a red flag. Assignments are ineligible under any circumstances).
2. In cases where the sales price of the property is 20% or more than the seller’s acquisition cost, all of the following have to be completed: a) justification for the increase in value. Supporting documentation to include a second appraisal and verification that the seller has completed sufficient renovation, repair and rehabilitation work on the subject property to warrant the increase in value; in cases where no such work is performed, the appraiser provides an appropriate explanation of the increase in value since the prior transfer.
3. The lender orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge the borrower for this inspection. The use of FHA approved inspectors or 203K consultants is not required. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection from any party other than the lender. The inspector may not compensate anyone for the referral of the inspection. In addition, the inspector may not receive any compensation for referring or recommending contractors to perform any repairs recommended by the inspection and may not be involved with performing any repairs recommended by the inspection. Note: all repairs recommended by the inspection must be completed. Inspection of completed repairs is required by a licensed contractor(s).
As always, please feel free to call me with any questions or to prequalify any of your buyers.
Make it a great day!
Tammi Lewis
Senior Loan Consultant
1st Mariner Mortgage
Cell#: (410)725-9451
Fax #: (443)296-9132
Buying or Selling a Home in Northern Virgina? Contact Kim Darwaza of RE/MAX Allegiance for all of your real estate needs at kim@kimdarwaza.com or 703-856-2254. To search the MLS please visit http://www.kimdarwaza.com.