What You Should Know About Buying A Flipped Property
Purchasing a flipped property in San Bernardino and Riverside counties just got easier. RPM Mortgage has eliminated the maximum 20% increase in sales price within 90 days. This change in guidelines will be huge for those looking to purchase a flipped property while interest rates are at 50 year lows.
Because the Inland Empire has been hit so hard with foreclosures, it should not be a surprise real estate investors are trying to make a few bucks. I am all for free enterprise and every entity should have the ability to make as much money as the free market allows.
But there are some rules to protect the public from unscrupulous investors. Prior to January 15, 2010, FHA had an anti-flipping policy that prevented an owner to sell their property within 90 days. For the past 15 1/2 months, in an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, this rule has been waived.
“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” HUD Secretary Shaun Donovan said.
Even though RPM doesn’t need to, most California lenders are still following the guidelines mandated by HUD, Fannie Mae and Freddie Mac. Here are just the bullet points for both FHA and conventional loans.
- Property flips within 90 days will only be allowed where the re-sale of a property and the new sales price is no more than 20% higher.
- All transactions must be arms-length; no identity of interest between buyer, property seller or third parties. Specific ways to ensure an arms-length transaction include:
- Property seller currently holds title to the property.
- LLCs, corporations or trusts serving as property sellers must meet all applicable state and federal law.
- No pattern or previous flipping activity exists on the property (as evidenced by multiple title transfers within the past 12 months)
- The property was marketed openly and fairly (any sales contracts with “assignment of contract of sale” may be a red flag).
- Flips between 91 and 180 days will require 2 full appraisals if there is a 100% increase from the acquisition price to the re-sale price. The cost of the second appraisal cannot be charged to the borrower.
- The 91 days is calculated from the date the seller took title to the date of the new purchase contract.
- The contract must be dated on the 91st day or greater to not be required to meet the max 20% rule.
- The application, case number and appraisal must all be dated on or after the contract date.
- Property flips within 90 days will only be allowed where the re-sale of a property and the new sales price is no more than 20% higher.
- Maximum LTV/CLTV is 80% for O/O and 2nd Home properties.
- Maximum LTV/CLTV is 60% for N/O/O properties.
- Minimum fico of 680 for O/O and 2nd Homes.
- Minimum fico of 720 for N/O/O.
- Minimum of 2 months reserves for owner occupied transactions.
- Two Full Appraisals are required.
Not every lender will follow these set of guidelines and there are still investors trying to take advantage of a housing weary public. If you have any questions or concerns about the property you are looking to buy, contact me or your trusted real estate advisor.
August 18, 2011 by Mark Estermyer · Leave a Comment
Mark Estermyer is a Senior Loan Officer with over 14 years experience in the mortgage lending industry. Mark's team works for RPM Mortgage, a private mortgage banker. At RPM Mortgage, we offer FHA, VA, all conforming and non-conforming loans. However our specialty are the Jumbo and High-Balance Conforming Loans. Mark can be reached at (909) 863-0000 or by email marke@pchfund.com.
