Do You Flip, Or Get Flipped?

May 11th, 2012

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I wrote a blog here in the summer of 2010 that talked about getting an FHA loan on a property that has been flipped. A flipped property is one that an investor buys and fixes up with the purpose of immediate resale. The Federal Housing Administration (FHA) has had a 90 day flip rule in place for quite a while to prevent the purchase and quick resale of a home within 90 days. They have doubts about the value added by investors over such a short period of time, and take pains to analyze the value on flipped properties. This past year this rule was lifted and it allowed immediate purchase and resale of a property, but only in the case of a property being foreclosed on and resold by a bank. So if you are buying a short sale or foreclosure, you can buy it and get an FHA loan on it immediately after the seller fixes it up with no waiting period or extra analysis.

But maybe you are not using an FHA loan, maybe you want to use a Conventional loan backed by Fannie Mae and Freddie Mac. Fannie Mae & Freddie Mac will require a full appraisal if the previous sale was a foreclosure or short sale, and the appraised value and the improvements need to support the appreciation in value, but there will be no time limitation policy against lending on this type of flipped home by the Fannie Mae & Freddie Mac agencies. However, although Fannie Mae and Freddie Mac have no 90 day flip rule for Conventional loans, many lenders will have their own restrictions on properties that have been bought and sold within 90-180 days. Lenders may allow on a Conventional loan, like on an FHA loan, for the immediate purchase and resale of foreclosed homes and short sales. But on properties that are not a foreclosure or short sale, that may be a problem. For example, I was told one lender did indeed have a 90 day limitation on flipped properties on their Conventional loans, and another lender specifically does not allow the resale of property within 6 months of the most recent transfer of ownership. So ask questions of your lender even if you are going with a Conventional loan.

And for you Veterans out there who may want to buy a flipped property, VA has not issued a specific policy on short sales, or a 90 day flip rule. It appears you can buy flipped properties under any circumstances with a VA loan.

In summary, for buyers of a flipped home, if the home has recently changed ownership in the last 3 to 6 months, it is important to know what the circumstances were. If the property was foreclosed on and being sold by the bank it is likely OK to get any loan. If the property was bought by an investor and resold right away for a higher price, then you will likely have to go through some extra steps and even a waiting period until you can buy the home.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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