Buyers looking to purchase a home with an FHA backed loan will continue to have more leeway to purchase directly from banks or investors with a recent decision by the Federal Housing Administration to extend its waiver on property anti-flipping rules through 2012.
FHA rules typically prohibit insuring a mortgage on a home where the seller has owned a home for less than 90 days, but in an effort to help clear bank-owned sales or foreclosures, the agency waived this regulation in 2010 and has now extended the waiver through 2012. The extension will allow buyers to continue to use FHA-insured financing to purchase HUD owned homes and bank owned properties, no matter how long the owner of record has held title.
"This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight," said Carol Galante, FHA's Acting Commissioner. “FHA remains a critical source of mortgage financing and stability and we must make every effort that to promote recovery in every responsible way we can.”
There are certain conditions and guidelines still in effect to prevent predatory property flipping, which is where properties are quickly resold at inflated prices to unwary borrowers. Some of these conditions include: all transactions must be arms-length, with no link between the buying and selling parties; and, if a properties sales price is more than 20 percent above the seller’s acquisition cost, the lender will need to meet specific conditions and document the justification for the increased value for the waiver to still apply.
Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition. The agency says its own research has found that in today’s market, acquiring, rehabilitating, and reselling foreclosed properties to prospective homeowners often takes less than 90 days.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
