BluefoxToday blog : Flipping Properties ............ Know The Lending Guidelines

Flipping Properties ............ Know The Lending Guidelines

With property values being as low as they are, many investors are taking advantage of this opportunity.  Investors will usually purchase a distressed property, foreclosure, short sale, or a property that just needs a little TLC.  This is referred to as Flipping properties, and there is nothing wrong with doing this.  It is a way for investors to make a quick profit, however, the profit might not be as quick as they think.

On all loans there is a required amount of time that the Sellers needs to have Title to the property before a Buyer can purchase the property and obtain financing.  This amount of time is based on the program guidelines, and Lender overlays.  I will give two examples that are based on both program guidelines and the overlays that we have a t McCue Mortgage.  Having said that I believe that you will find that we follow what the industry standard is right now.

My first example is of a Buyer trying to purchase a property with FHA Financing.  In the case of FHA Financing, the Seller will need to have Title to the property for a minimum of 91 days before a Buyer can obtain financing.  If the Seller is selling the property between 91 - 180 days of owning the property, FHA & Lenders will require two appraisals on the property, and one of them HAS to be paid for by the Seller.  The Seller will also have to provide receipts for the work done to justify the increase in the selling price.  After the Seller has held Title to the property for more than 181 days, the sale will be treated pretty much like any other sale.

 

The second example is for a property being purchased with Fannie Mae Financing.  Here you may see more of a variation between Lenders, but most will likely follow what we follow.  Fannie Mae requires the Seller to hold Title to the property for a minimum of 181 days, and like FHA two appraisals will be required, with one of them being paid by the Seller.  Again receipts will have to be produced to justify the increased selling price.  Lenders may require the same documentation on a Fannie Mae Loan for up to one full year.

These guidelines do not apply to Bank Owned Properties, or properties acquired through a divorce, or inherited property that has gone through Probate Court.

If you are representing investors that are Flipping Properties, make sure that you talk to your local Lender to go over both the program guidelines and the Lender guidelines.  Failure to do this may result in some very unpleasant and costly surprises.

 

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  Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

Comment balloon 27 commentsGeorge Souto • March 18 2012 06:02PM

Comments

Fantastic information, George.  I have a few investors looking for fixer-uppers and will remind them of these potential limitations.

Posted by Kathryn Acciari, RSPS, SRS, REALTOR(R) Sturbridge-Shrewsbury MA (Cameron Real Estate Group) over 6 years ago

George, I also have one investor that I'm working with that this information will no doubt be helpful...thanks.

Posted by Nick T Pappas, Madison & Huntsville Alabama Real Estate Resource (Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Huntsville AL) over 6 years ago

Good information for the 1st Time Investor... so many sold by late-nite infommecials that the true facts never really surface. Real Estate Investing is great! Of course, not all investors are "rehab & resale" types... I also like the CASH buyers and Portfolio Investors (less guidelines) Thanks for the info George.

Posted by Diego Marin, Real Estate Solutions (World Wide Realty) over 6 years ago

George,  Many don't really care about the guidelines. There is "fraud" taking place with Buyers and I get the feeling that lenders don't really care. 

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) over 6 years ago

Great post George.  It's important for Realtors, Buyers and Sellers to know these guidelines before listing a "FLIP" home for sale.  Loan programs such as FHA and others have specific rules and overlays that don't allow these to be viewed as just another standard purchase sale.  Thanks for helping to keep our AR members informed.

Posted by Doug Bullwinkel, Mortgage Loan Originator NMLS #281609 (Envoy Mortgage, NMLS 6666) over 6 years ago

George,

  Thanks for the information. I try to get on everyday. I always learn something new.

Posted by Ron T. Weems Jr., Managing the details one home at a time. (Weems Property Group | KW North Sound) over 6 years ago

Very interesting information George.  Those doing flips on lower priced homes that appeal to buyers with this type of financing, should keep this in mind.

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) over 6 years ago

I have been flipping houses for more years than I care to admit. most folks believe that because if thes low prices was the right time to start flipping houses.

The professional house flippers will tell you it doesn't matter what the market is doing. If the property is purchased correctly, it will get sold correctly.

Thank you for sharing the post with all of us.

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) over 6 years ago

George, good information for all to be aware of for sure...most flippers do need financing.

Posted by Ginny Gorman, Homes for Sale in North Kingstown RI and beyond (RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate) over 6 years ago

Thank you for sharing. I will bookmark this post and share it with investors.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 6 years ago

The mortgage company that I work with is providing FHA loans for properties held less than 90 days.  The Federal government waived the requirement so that buyers can purchase REO properties.  This also works for investors buyering properties as well.  See below

 

FHA lenders had reason for cheer and mirth at the end of last week. "In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting FHA Commissioner Carol Galante will extend FHA's temporary waiver of the anti-flipping regulations." With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days, but this rule is waived through December 31, 2012, unless otherwise extended or withdrawn by FHA. "All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions: All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value. The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. For FHA technical support, please contact the FHA Resource Center."

Posted by Keith Lawrence, ABR, CDPE, SFR, 203K Specialist (RE/MAX Properties) over 6 years ago

I'm very much aware unless someone has steered me wrong . . .FHA will allow under the 90 day rule. .I will be checking on this because I'm in the middle of one.

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) over 6 years ago

NIce points to review for those considering flipping. Also (at least in California), the flipper can purchase a title policy with a rider in order to save a few bucks on the sale to the flippee.

Posted by Melissa Zavala, Broker, Escondido Real Estate, San Diego County (Broadpoint Properties) over 6 years ago

Hi George, it certainly helps to know these rules to assist investors before seeking financing.  Thanks for the info.

Posted by Ron Cooks, Texas Real Estate, Ft Hood/Killeen Homes for Sale (The Real Estate Marketplace) over 6 years ago

Keeping everything above board and in the Real Estate flow proves to work all the time...going outside of this fails every time....Ethics plays a big part in the Real Estate world....I wonder why

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) over 6 years ago

As a mortgage loan originator myself, I can tell you that the most important thing to stem from the flipping issue is just how important it is to review the title report or property profile on the subject property IN EVERY CASE.  There are so many nuances and so many guidelines and overlays that you have to get a definitive grasp before proceeding with any transaction.  Great post.  Thank you.

Posted by Rob Spinosa, Vice President of Mortgage Lending, Marin County (Guaranteed Rate, Marin County, CA) over 6 years ago

Nice blog! thanks for sharing!

Posted by Jamey "Milly" Milheiser (Fairway Independent Mortgage Corp.) over 6 years ago

Thanks, George. As in anything else the devil is in the details, huh? Thanks again!

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) over 6 years ago

Great to know these guidelines ! I'm gonna BOOKMARK this to share with my classes !!!

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 6 years ago

VERY important info, George, for flippers. They typically want to get in, fix up, and get out quickly. They had better know these regulations before they think they can just turn a house over on their own schedule.

Posted by Barbara Altieri, REALTOR-Fairfield County CT Homes/Condos For Sale (RealtyQuest/Kinard Realty Group, Fairfield and New Haven County CT Real Estate) over 6 years ago

George:

Good information.  I knew that a flipper couldn't sell before 91 days, but I didn't know the other guidelines.  I am bookmarking your post for future reference.  Thanks

Posted by Evelyn Kennedy, Alameda, Real Estate, Alameda, CA (Alain Pinel Realtors) over 6 years ago

Kathryn they need to talk to local Lender to be safe, because just because FHA may allow it or make an exception, it does not mean that Lenders will go alone with it.
Nick as I said to Kathryn they need to check with local Lenders because of Lender overlays on top of FHA Guidelines.
Diego nothing beats cash, but there are not to many first time homebuyers out there with a lot of cash and that is who I see purchasing many of the Flipped properties.
Kathleen Lenders care because it costs them money, but they can't catch it all.
Doug you are absolutely right.
Ron there is a lot that can be learned in the Rain if we take the time to look.
Gabe they would be well advised to do so.
Joe, that is why they need to be familiar with the local financial institutions are doing so they do not get caught in an uncomfortable position.
Ginny, Flippers usually have their financing in place, the problem comes when they try to sell the property and surprises pop up.
Gita, hope it comes in handy.
Keith, yes FHA provide an exception, but the problem is many Lenders are not allowing for the exception.  Exceptions leave Lenders open to the risk that FHA will come back and say that it was used improperly, and refuse to insure the loan later.  FHA, Fannie Mae, and Freddie Mac have been shipping loans back to Lenders on a regular bases, making Lender gun shy and unwilling to take on the additional risks that come with exception.  I you have a Lender that is willing to do that in these times, God Bless you because there aren't many that are.
Fernando read the comment that I made to Keith.  Check with your local Lenders to make sure they are going along with the FHA exception, because many are not.
Melissa thank you for the information, because I have not heard of that around here.
Ron better to be informed first than to be surprised later.
Richie good advice.
Rob I completely agree.  We can't take nothing for granted these days.  Just because it was allowed yesterday does not mean it will be allowed today.
Jamey you are welcome
Paul that is a good way to put it.
Michael I hope they are useful to you
Barbara that was my reason for writing this blog.
Evelyn you are welcome.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 6 years ago

George

Thanks for the detailed clarification. I was aware of some of this but not all the specifics. Good information for those who are not aware and are, or are planning to be, involved with trying to flip homes.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude - Carlsbad (Solutions Real Estate ) over 6 years ago

George a very informative post, it is wise for any investor needing financing on a property that will be flipped to know the rules up front.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) over 6 years ago

George, I had an investor tell me last week that they could sell under 91 days, but FHA would require all kinds of documentation on the updating, so they wait until 91 days and they don't have to jump through those hoops.

Sharon

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 6 years ago

The only exception we have run into is when the investors are making more that 20% profit.  If you are under that or have a bank owned property we have had no problems buying properties with FHA for title held less than 90 days.

Posted by Keith Lawrence, ABR, CDPE, SFR, 203K Specialist (RE/MAX Properties) over 6 years ago

George,

Flipping on short notice isn't as easy at it may seem if there is a mortgage involved, and for good reasons. The key is that each lender has its own guidelines, so be aware.

Posted by Esko Kiuru over 6 years ago

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