FHA Loan with 90 day flip

I was thinking I need to start sharing my own real estate experiences on my blog. I am not going to mention any client names, cooperating agent names, or lender names but there are helpful tidbits of information that can benefit anyone in the home buying or selling process that I experience all the time.

In my most recent transaction I had clients that were obtaining an FHA insured loan.

When it came down to the home that my clients liked, it turned out to be a home that is considered a 90 day flip. Which means the seller purchased the home less than 90 days ago and is trying to turn around and sell it for a substantial profit.

Normally you cannot buy a home that is being flipped within 90 days of the last purchase date with an FHA insured loan but that rule has been suspended until December 31, 2014. So you can use an FHA insured loan to buy a 90 day flip home but not after December 31, 2014. Also, you must jump through lots of hoops with your lender.

Based on FHA guidelines, here is a summary of the eligibility requirements to purchase a 90 day flip with an FHA insured loan:

1. All transactions must be arms length. Which basically means that buyer and seller cannot know each other or be related to each other in any way.

2. If the current sales price is greater than 20% of the sellers acquisition cost then the lender will require a second appraisal as well as an inspection on the property.

3. Only forward mortgages are eligible under these guidelines.

So guess what? Of course my clients had to wait on a second appraisal. Both appraisals came back over sales price, which was AWESOME!!!!!

One week before we are set to close on this home the lender required a copy of the inspection report because of the 90 day flip rule. Normally I would never let the lender see this because it opens up a whole new can of worms, but in this case to move forward we had to give them what they wanted.

Once submitted, the underwriter came back and asked for every single item on the inspection report to be repaired before we could proceed with the purchase of the home. I was floored! I have NEVER seen a lender ask for every single item on an inspection report to be repaired before. On another note we had already negotiated money towards closing instead of repairs. The seller was also unwilling to do the repairs.

So, I  asked my broker about these rules as well. He said the only thing we can do is comply with the lender requests or terminate the contract. Whaaat? I was not too happy with his response. My buyers had come too far in the process on this home to let it slip between their fingers like that.

I had to go back to the FHA guidelines to make sure this was not a part of the rules and of course it was not. Yet this lender didn’t know the rules and was asking me to send them the FHA guidelines. You would think FHA approved lenders would know the guidelines with out having to ask a real estate agent to send them the information – but that is a whole other story that I may blog about later.

According to FHA guidelines, and this is a direct quote right out of their website:

D. Repairs
If the inspection report notes that
repairs are required because of
structural or ‘‘health and safety’’ issues,
those repairs must be completed prior to
closing. After completion of repairs to
address structural or ‘‘health and safety’’
issues, the inspector must conduct a
final inspection to determine if the
repairs have been completed
satisfactorily and eliminated the
structural or ‘‘health and safety’’ issues.
The borrower, lender, or mortgage
broker may order the final inspection.
So guess what? I sent this information to the lender, let them know that the inspection report was in full compliance with the guidelines and waited to hear their response. After a week of flat out stalking them daily to get an answer the lender came back with 5 items on the inspection report that they were insisting on being repaired. It actually seemed much better than the previous request to fix everything. So I sent the items to the listing agent and he said that his seller would comply.
After the items were fixed we had the original inspector come back out and make sure that all the lender required repairs were indeed repaired and once he had done his report we were clear to close. We ended up only having to extend the closing by about 4 days which is amazing in the grand scheme of things.
When working with an FHA approved lender and you think they are making you bend over backwards too much, search out the laws, rules, and guidelines. Better yet, ask your real estate agent. If your agent doesn’t know they should be able to find out. It doesn’t cost anything to do a quick search on google. Don’t just take the lender’s word for it. You will be glad you didn’t.