For as long as I can remember, there has been difficulty with FHA purchasing investor flip properties. An investor flip is a transaction where an investor buys a home at a discount, normally in a distress sale and then quickly turns around and sells the home for a profit. Most times the investors performs cosmetics repairs and is able to sell the property and make a very nice profit in less than 90 days.  Investors normally are the buyers for these distressed properties because they are being sold at auction from a bank after foreclosure or the seller has to sell the property very quickly. Either way, investors have to pay cash for the property so the sale is a very quick transaction. Buyers who have obtained financing cannot purchase these home since the time between the property auction and closing is just a few days.  Investors can find bargains in these transactions.

Currently most home buyers are using FHA financing to purchase their homes and investors are buying many of these properties in foreclosure sales.  Until recently, FHA had a rule that a property being sold must have been owned by the seller for at least 90 days before an FHA borrower could make an offer on that property.  Over the last year, FHA has changed that rule to allow banks that have foreclosed on properties to be sell properties the banks own within the 90 day period. Now FHA realizes that investors who purchase homes and are able to turn around these homes very quickly and can help the real estate market by reducing the time properties sit on the market vacant and move the inventory faster.  On February 1, 2010 FHA issued a waiver of their 90 flip policy to temporarily allow buyers who are using FHA financing to purchase these homes that are owned for less than 90 days.  This waiver is currently in place for one year.

Be very careful and read the attached FHA waiver and PLEASE, PLEASE understand a few of the key points about this waiver.  This does not open up all investor property flips to FHA financing.  I am going to outline the major key point and explain how NOVA Home Loans will close these loans.  NOVA Home Loans will follow this waiver from FHA.

1.   All transaction must be arms-length.  There can be no identity of interest between the buyer and seller or any other party participation in the sales transaction

2.   If there has been a 20% or greater increase in the new sales price over and above the sellers acquisition cost, the lender must justify the increase.  Sellers should provide a list of repairs/improvements that were done to the property.   If such work was preformed, the appraisal should provide appropriate explanation of the increase in property value since the proper title transfer. Lenders my request a 2nd appraisal to support the value.

3.  Realtors, please read this: The Lender must order a property inspection on the subject property and the inspector must be paid by the lender.  NOVA Home Loans will collect the inspection money and NOVA Home Loans must order the inspection and pay for the inspection.  Please tell the loan officer what Home Inspector you wish to use. 

4.  There can be no history of previous flipping activy for the subject for the last 12 months.

5.  Property must be fairly marketed to all buyers.

Most lenders are not following the FHA waiver for properties that have 20% or greater increases in value.  NOVA will follow this waiver for qualified FHA buyers and qualified properties.