Flip it in 2012: FHA extends special funding waiver

Investors, start your engines and prepare to look for properties.

In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, FHA extended a temporary waiver to its anti-flipping regulations through 2012.

FHA rules usually prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, FHA temporarily waived this regulation through 2011 and extended it again this week through 2012.

The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The waiver is a godsend to investors seeking to rehab and flip properties, because it expands the pool of eligible borrowers to include those relying on FHA-backed loans.

The waiver continues to be limited to sales meeting the following conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction;
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value; and
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.