There’s a ton of rumors and speculation surrounding the “90 day seasoning rule” for homebuyers who are using FHA backed mortgages. Here’s a basic outline of the rule; if you’re a qualified mortgage buyer and you want to buy a home using an FHA backed mortgage, which by the way 95% are using today, the house must have been owned by the seller for at least 90 day.
Because the government is trying to protect consumers from predatory foreclosure flippers-whether you agree with government over regulation or not I’m not going in that direction for this article. I am simply offering the facts and solutions for fellow Michigan real estate investors to use the guidelines to their advantage.
Basically if you bought a house to fix up and resell you typically can’t accept an FHA backed mortgage offer until day 91, that’s the old guideline. However late last month the FHA decided to extend the suspension of its ‘anti-flipping rule’ through the remainder of 2011. HOLD ON! Before you start doing back-flips and flexing your Donald Trump muscles there are guidelines that must be followed.
First and foremost under these guidelines you can only resell a property for a 20% or less elevated price from which you bought it. Example: a $50,000 purchase price allows you to resell the property immediately, yes even the next day, for a maximum sale price of $59,999.99 without having to furnish the mortgage underwriter with any extra documentation* AH-HA, here’s where the asterisk from the title comes in.
If you are hoping to be able to sell for more than the 20% above purchase price rule…think about it, after closing costs, possible commission, and seller concessions what’s left of your $10,000 above? Plus I didn’t take into account the cost of any repairs…you must supply the mortgage underwriter with a very detailed list of repairs. Most of the time this will actually help even if your sale is going through after the “90 day FHA seasoning rule.”
I hope you’re paying attention to each and every penny that you spend on your rehab projects because if the appraiser and underwriter don’t believe that you’ve done a good enough job substantiating repairs you are going to get whacked on your appraisal-that means the house your selling will appraise for less than the buyer is willing to pay.
How do I know this? Experience, first hand.
In the last 12 months appraisers have literally ripped over $30,000 cash right out of my hands because the houses appraised for just a little less than the buyer was willing to pay.
Yes these were rehabbed homes, yes I could substantiate repairs, but sometimes even with all of the ammunition in the world you can still come up a little bit short. That’s why I always preach that you must buy right-meaning if you over pay just $5,000 too much and the appraiser whacks you for $10,000, your $30,000 profit just became $15,000. It doesn’t take a genius to figure out that the scenario above is a recipe for unhappiness.
The question is how can you ensure that you’re not paying too much, you’re rehabbing right, your financial records are in order, and you have buyers agents’ writing offers the minute they show your property?
The answer: get to the 2011 Info Conference on February 24th and build your Power Team. At this month’s Main Event there will be 8-10 experts who are hosting their own round tables. Every 10 minutes or so attendees will rotate to each table to learn how each expert can help you flip more houses faster.
To pre-register to attend Click Here.
Remember all REIA of Macomb members and first time guests attend absolutely free.
If you’re not already a member and don’t want to keep missing out on all of the benefits of the REIA of Macomb check out our Membership Page Here.
Please let us know if you have any insight concerning selling your flip houses to FHA buyers by leaving a comment below.
We look forward to seeing you on the 24th!