It's OK To Flip With the FHA - Seattle Home Inspection

by Preston Howard

This move was definitely in best interest of the neighborhood, the buyers, the sellers, the brokers, the bankers, the industry and our nation. So flip while you can, hurry, because this offer ends soon.
When I heard that Carol Galante had made an important announcement about FHA mortgages, I took a pause, because: 1) I didn’t know who the heck she was, and 2) I wanted to know why everyone was making a big deal over what she had to say. Later, I learned that Ms. Galante is the acting Commissioner of the FHA (Shaun Donovan recently stepped down) and that her big announcement was actually gargantuan for a certain piece of our industry. The FHA is going to allow 2012 to be the year of the flip, as FHA’s anti-flipping regulations have been waived for all of 2012!

For those of you who were not already aware of this, the FHA (and lenders who book loans and then insured by the FHA) had a ruling that didn’t allow a buyer to utilize FHA financing to buy a home that was owned by the seller for less than 90 days. Accordingly, many buyers had to pass up on properties, or pull the plug on escrows because their dream home was a flip that the seller recently picked up at an auction. Conversely, the flip artists who were selling these properties were obviously livid due to blown escrows.

By and large there are three parts of the buying public: investors with lots of cash, homeowners-to-be with 10-20% to put down, and homeowners-to-be with a lot of desire, but very little money to put down. The bookends of this list are the ones who will benefit the most from this ruling. The investors who have the financial wherewithal to purchase distressed properties at deep discounts through short sales, trustee sales, and REOs are ecstatic at this because their carrying costs will fall, as they won’t have to hold properties as long in order to get them sold. Buyers with limited financial resources to allocate towards a down payment will benefit from this ruling, because for them, the FHA is the lender of last resort, so this will add to the potential inventory list of properties from which they can choose from.

As much as this is manna from heaven, let’s keep in mind that this is the government, so there will be restrictions. There will be guidelines to prevent non arms-length transactions between relatives and friends. Processes will also be in place to protect buyers from overly inflated properties. As it stands, if a property is being sold for more than 20% of the seller’s purchase price, it will be subject to all sorts of scrutiny, which will most likely include multiple independent appraisals, and a detailed itemization of work completed. So flipping got easier– it’s just not a free-for-all.

As a whole, Ms. Galante and the rest of the governing body of the FHA made a good decision. They have stated that the ruling was made “in order to continue to stabilize home values and improve conditions in communities experiencing high foreclosure activity.” Put more bluntly, in many areas across America, flip artist investors are the only ones buying foreclosures and people with very little means but an FHA pre-qual in their hands are the only ones interested in buying their properties. So this move was definitely in best interest of the neighborhood, the buyers, the sellers, the brokers, the bankers, the industry and our nation. So flip while you can, hurry, because this offer ends soon (12/31/12)!