24 Apr FHA Flipping Guidlines
Most likely, you already know what “Flipping Houses” means. For readers out there who don’t, though, Flipping Houses is basically like buying and selling cars. It’s easier to visualize buying and selling cars because they are movable properties, but yes, you can do the same with real estate properties. You buy a property, usually a house, and then you choose to either restore the property and then sell it right after, or leave the property as is and hold on to it for a few months or so before you sell it. People usually hold on to it to improve it, increase its value! Basically, buy and sell of real estate.
You’d think that only people with lots of money can flip houses, but actually, you don’t necessarily need to be rich to be able to do this. Take it from me, I didn’t have money when I started this business. You have a number of financing options to fund your flip such as bank loans, high interest loans (or what I prefer calling “Hard Money”) cash, partnerships, private money, etc. Conversely, there are many ways for buyers to finance their purchases, one of which is though Federal Housing Administration (FHA).
When it comes to selling your flip properties, or real estate investments in general, I hear a lot of investors who are turned away from accepting an offer from a buyer that has an FHA loan as opposed to a conventional or Veteran’s Administration (VA) loan program. But in my opinion, investors shouldn’t be scared of getting an FHA loan, and neither should investors be worried transacting a sell with an FHA-financed buyer.
FHA loans bring home ownership into reach for people who want to buy a house but do not have the downpayment money needed to obtain a conventional loan or some other type of capital or credit issue.
Choosing to accept a contract from an FHA buyer in order to sell a house may seem a little inconvenient and maybe even a little more complicated, but it really isn’t so bad once you get to know how the FHA process works.
As with any other loan, there are a several guidelines that you must be aware of.
One of the things the FHA takes into consideration are certain time restrictions and documents needed before you or we, as investors, are eligible to “flip” an existing property to an FHA buyer. Whether or not you are eligible to sell a property to an FHA buyer depends on when you acquired the property and when you intend to resell the property.
This is called the “anti-flip rule”. This rule basically says that when a new FHA buyer is looking to buy a property, that property has to have title seasoning of 90 days. One of the down sides of this is that it requires a second appraisal made by the investor.
Aside from eligibility, the FHA also makes sure that the price of the property that is being sold is sold at the “proper” price and not inflated or taking advantage of buyers. They must make sure that whatever increases in price are appropriate, and make sure that you end up selling the house for the price that it should be sold at!
The FHA takes into consideration several conditions before a transaction can take place just to make sure that whatever transactions take place are done legally and in accordance to the federal guidelines, aka Dodd-Frank.
Despite all the legalities and technicalities, I’ve never lost a buyer I went into contract with that was being financed through the FHA.
Investors who are usually scared away by offers from FHA-financed buyers are usually those that aren’t that well-informed about how the FHA works. Once you get past this, flipping houses becomes less confusing and easier to do.
One thing that you can always take into consideration when it comes to your buyers is to make sure that they’re qualified and that you are aware of the guidelines as well. That way, it won’t be the stumbling block to your flip on the back end.
Hope this helps you in your flipping adventures,