Information on FHA Anti-Flipping Waiver

Information on  FHA Anti-Flipping Waiver

Today Ask Gina & Company is proud to feature guest blogger, and First Home Mortgage Branch Manager Marc Aymard! Marc brings to us some excellent information on the FHA Anti-Flipping Waiver. Take it away Marc! :

“Around the first of the year you probably heard that HUD has extended the FHA anti-flipping waiver. And you may have gone to a loan officer and asked; “Can a FHA borrower purchase a flipped property?” Most likely, the answer you received was “NO.” You may have also seen a listing from an investor who rehabbed a property with the listing comment; “no FHA offers accepted.”

So it begs the question, what’s the truth? The simple answer is FHA has almost no restrictions on “flipped” properties. A borrower can by a property that was flipped using FHA financing. (By definition a flipped property is one that has been owned by the seller for less than six months).

Bank specific overlays. The confusion lies in the fact that each lender has their own rules on top of FHA’s rules. These extra rules are commonly referred to as “overlays” in the industry. A common example of an overlay is credit score. Most lenders will tell you borrowers with a credit score below 620 are not eligible for FHA loans. What they really mean is that borrowers are not eligible for an FHA loan through their bank. The minimum FHA credit score is 530. So are the banks evil? Not really. FHA allows these lower scores, but they also track the performance of a lenders FHA loans. If too many default, they lose the ability to fund FHA loans.

So what do overlays have to do with flips? A flip has an inherent risk of fraud. Even with all of the new regulations, checks and re-checks, flips statistically are more likely to involve fraud and therefore create added risk for lenders. That being said, a flip is not fraud and the best lenders have the ability to make that distinction.

Who is financing these loans? This is where mortgage banks like the one I work for are willing to take a calculated risk. We are confident we can tell the difference between a legitimate flip and a fraud. There are added precautions (as outlined by HUD) but FHA financing is available. Interestingly, conventional financing with less than 20% down is actually more harsh on flips than FHA.

What is the bottom line? Any property that was purchased by the seller in the past six months is most likely be eligible for FHA financing. It’s worth making the distinction that the due diligence is much more robust if the new sales price exceeds the seller acquisition cost by 20%. It’s best to stay below this 20% threshold, but not a requirement. And if you find a listing that says “no FHA offers” give us a call and we can explain to the listing agent their comment is misplaced.

If you’d like more details on the nuances of this waiver, feel free to call Gina Tufano or Jen Warner, your Loudoun County Real Estate experts at Ask Gina & Company today for further details.