FHA Rules Change for Buyers…but make sure you read the fine print!

Beginning February 1, 2010, FHA will allow financing on homes that have been flipped. This is great news for the Phoenix Real Estate Market where a large portion of the inventory of homes for sale are homes that have been purchased by investors for pennies on the dollar, fixed up and sold in a matter of a month or less.

Up until now, a buyer using FHA financing could not purchase a home that had been owned by the seller for less than 90 days.

There are some rules that go along with this change:

#1 – The transaction must be arms-length which parties involved in the transaction cannot be related. In order to ensure no inappropriate collusion between parties, the following rules must be met:

•Seller holds title to the property
•LLCs, corporations and trusts that are serving as sellers must be organized and operating in accordance with State and Federal law
•There must be no pattern of flipping for the preceding 12 months
•The property must be marketed openly and fairly (an MLS listing would satisfy this requirement). Sales that have an “assignment of contract” would be a red flag
#2 – If the sales price is 20% or more than the seller’s acquisition costs, the waiver only applies if:

•There is some evidence to justify the increase in value or a second appraisal. This requires evidence that the seller performed legitimate renovation, repair or rehab work to substantiate the value or, where no such work has been performed, the appraiser provides an explanation of the increase in property value.
•A property inspection must be ordered and the report provided to the buyer before closing. The inspector must have no interest in the property or relationship with the seller.
This is welcome news as it is intended to help stimulate the sale of foreclosed homes and stabilize home values. Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website at: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

About The Amy Jones Group

Mindy Jones Nevarez is the owner of Amy Jones Group Keller Williams Integrity First. The Amy Jones Real Estate Group has been recognized as the #1 Real Estate Team in Chandler by the Phoenix Business Journal and voted Best of Our Valley for 4 years.

The Amy Jones Group specializes in real estate in Chandler, Sun Lakes, Gilbert, Mesa, Tempe, Ahwatukee, and Phoenix.