FHA relaxes the “FLIPPING” rules
First of all, what is “flipping“; this is when a buyer purchases a home and then almost immediately places the home on the market for sale at a profit. This kind of activity is usually accomplished by investors who typically purchase a property in need of repair or improvements, then they complete the repairs / improvements and sell the home at a profit.
The Federal Housing Administration in the past has frowned upon this type of activity; that is to say flipping, due to the tendency to have prices over inflated. During the real estate boom many people conducted flips in a not so legitimate format. However, most investors are very legitimate and are simply looking to make a living by doing what they do best – improving properties. A good flip deal usually benefits everyone: the investors buys a property under market and makes a profit at the sale, the end-user buyer will buy an improved property that more than likely they would not have been able to improve themselves.
Now the FHA as of February 1st has loosened rules on flipping. The FHA will begin to offer financing on some properties in which the sellers has owned the property for less than 90 days. These less strict anit-fligging rules are being made in an effort to speed up sales in communities in which the rate of bank owned or foreclosure properties is too high.
This is most certainly going to be a positive effect on the market. hopefully the new rules will allow for a faster absorption of inventory.
South Florida Brokers & Associates, Inc.
NEW FHA Policies
The Federal Housing Administration or FHA has announced some changes which are geared at strengthening the capital reserves as well as manage risk. These changes will affect borrowers abilities to secure a loan, they are changes that should be reviewed prior to making a loan application. The following is a list of changes:
1. The mortgage insurance premium (MIP) will be increased to 2.25% of the loan amount. In addition, the FHA will seek approval to increase to the maximum annual MIP that the FHA can charge. However, if the maximum is charged then the premium or at lease a portion of the premium will be spread out through the term of the loan versus being paid upfront; this will enable the borrower to feel less upfront impact of the premium while still building the proper capital reserves. The initial MIP increase should go into affect this coming Spring.
2. The credit and down payment requirements for borrowers will also be updated. In order to qualify for a 3.5% down payment they must have a 580 or greater FICO score. Those borrowers with a lower than 580 Fico score will be required to place 10% down payment. This change is being made in an effort to balance the risk factor involved with these loans.
3. Seller concession or contributions will be reduced to an allowable 3% this is down from 6%. This change was made in order to eliminate the tendency to over inflate appraised values.
There are some additional operational changes that will be taking place; however, we feel that these three changes are the ones that will affect borrowers in the immediate process.