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Benicia-Vallejo First-Time Buyers Just Might ‘Flip’ Over New FHA Rules

January 19th, 2010 categories: Buying, Loans / Financing, Selling

Flip GraphicIn a remarkable turnabout that could open new doors for first-time home buyers using an FHA loan in Benicia, Vallejo and other parts of Solano County, the Dept. of Housing & Urban Development just announced that beginning Feb. 1, it will allow FHA buyers to purchase “Flip” properties.

Up until now, FHA has frowned on investors who have tried to profit on this down market by buying homes at a discount and then putting them back on the market right away at a far higher price.

So in order to discourage this practice, HUD banned FHA buyers from entering into a contract Pull Quoteon any home that had previously sold within the past 90 days.

To their dismay, many FHA buyers would come upon what they thought was the ideal home — which in many cases had new cabinets, counters, flooring, fresh paint and new landscaping — only to find that it was owned by an investor who purchased the home 30-40 days earlier and had spent the better part of the past month doing all these improvements.

As a result, many homes that were neighborhood eyesores just a few months earlier were now the crown jewels of that neighborhood. Yet, most first-time buyers couldn’t make an offer unless they waited until Day 91 to do so.

And in a market where multiple offers are very common, there was very little chance of a beautifully updated home staying on the market for 3 weeks, let alone 3 months.

But come Feb. 1, FHA buyers will be able to buy these restored properties as soon as they come on the market, regardless of how long the seller has owned it.

Why the sudden turnabout? It sounds like HUD finally realized that it was actually putting those who they are supposed to be helping at a big disadvantage.

According to HUD’s press release, “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

The policy change is temporary — it goes into effect. Feb. 1, 2010 and is good for one year. FHA’s commissioner has the authority to go back to the old rules before then or even extend it. But for now, it’s essentially a one-year reprieve.

As with any government policy, there are, of course, “certain exceptions.” So, only those “flip” sales which meet the following criteria will be eligible for FHA financing:

  • Generally, the 90-day waiver will apply only if the property is sold for no more than 20% above what the seller paid for the property. (Though, there are certain exceptions.)
  • It must be a “pure” arms-length transaction — where the seller, seller or other parties don’t know each other. Any hint of collusion or a side-agreement between “interested” parties, and no FHA loan.

If you like reading government documents,  HUD’s official 5-page policy change is on their web site.

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    This entry was posted on Tuesday, January 19th, 2010 at 10:54 am and is filed under Buying, Loans / Financing, Selling. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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