FHA Allows Quick Resale Of Flips

San Diego Real Estate: Effective February 1, 2010 temporary restriction suspended on reselling in less than 90 days

In what is mostly good news for the San Diego real estate market, HUD announced yesterday in a press release that it is suspending the requirement of a buyer using an FHA loan if the Seller has owned the home less than 90 days – which is most cases would be a flip.  The change in policy will be temporary and the goal is to give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

I would strongly suggest that buyers proceed cautiously in the purchase of flip properties and have professional home inspections done to determine actual conditions.  Particular attention should be paid to major components including heating and air conditioning, roof, foundations, and appliances.  Many times investors purchase poorly maintained properties from banks and pretty them up with new paint and carpeting, but fail to address serious issues that will cost thousands to fix in the short term.

Overall this is a positive move opening up the ability to use FHA financing at 3.5% down and will open up the pool of buyers as 2010 will continue to see Short Sales and Bank Owned Sales.  Investors that purchase and fix these properties can help maintain neighborhoods and property values – but as always the potential for predatory practices is a possibility.

Photo courtesy of Flickr