Flipping houses can be great.
I work with a lot of flippers.
Flippers are individuals who buy homes at low prices, renovate and repair them, and then resell them for a profit. While the majority of these renovations take a significant amount of time to complete, usually 5-6 months, occasionally they are done sooner. A fair amount of flip properties are those that are outdated, smaller homes, which when completed, are ideal for first time homebuyers. Many first time homebuyers utilize FHA loan programs, since this loan program only requires 3.5% down.
“If you are selling between 91-180 days, a second appraisal will be required by FHA, but only if you have 100% or more increase in the value of the property“
So what happens when you have a quick project, you’re way ahead of schedule, and you have a Buyer who wants to buy 2 months after your deed was recorded? You have a potential anti-flip rule violation, I am afraid. FHA is not a fan of flipped properties for one reason or another. A few years ago, FHA instituted a rule to dissuade Buyers from using their FHA loan on a flipped property. The anti-flip rule states that a Seller cannot enter into a contract to purchase with an FHA Buyer until 90 days have passed since the Seller’s deed was recorded. Seller must wait until day 91 to accept an offer, draft a Purchase & Sale Agreement, and the Buyer must wait until day 91 to submit documents to their lender for FHA consideration. Of course, there are exceptions, such as inheritances, bank-owned properties, etc. The rule simply prevents the Seller from making an excessive profit in a short period of time with an FHA borrower.
For example, Seller Sam purchases 123 Main Street on January 2, 2019. Buyer Bob loves this house, and wants to use his FHA loan to buy. He writes an offer, which is accepted on March 1, 2019. That offer is no good for FHA financing. Buyer Bob and Seller Sam cannot execute an offer until April 3, 2019 under the FHA anti-flip rules. Buyer Bob cannot submit a P&S to his lender dated earlier than April 3, 2019. The closing clock starts ticking with the lender no earlier than April 3, 2019.
If you are selling between 91-180 days, a second appraisal will be required by FHA, but only if you have 100% or more increase in the value of the property.
So, you can just tell FHA buyers they aren’t welcome, right? Sure, but you are eliminating an entire category of buyers in doing so. The Massachusetts FHA loan limits can go as high as a hair over $726,000 in some counties, so you are not only dealing with low-end buyers.
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