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FHA to waive the 90 day flipping rule


HUD and the FHA have officially waived some major components of what's known as the 90 Day Flip Rule. Basically, this rule forbid the use of FHA loan guarantees for the resale of a home within 90 days of a previous change of ownership. Therefore the old 90 day flip rule prevented a buyer to use FHA financing to purchase a home where the seller hasn't owned the home for at least 90 days.  It's intention was to stop abuses of the system and consumers in the fast flipping of homes, often with large profits unrelated to any added value in the flip. As of February 1, 2010, the major provisions of the rule have been waived for a period of one year. Now the home can be sold very quickly after purchase, with only the amount of time necessary to record and prove ownership as a delay. Many investors are rejoicing, as they have been reluctant to purchase a foreclosure, put the work and money into repairs and rehab, and then sit back and risk vandalism and increased holding costs while the 90 days went by.  They were restricted to selling their home to cash or conventional loan buyers.

 There are restrictions to this new of course. It must be an arms-length transaction, with no personal or business relationship between buyer and seller. The lender must keep records proving that the increase in price, or investor profit, is justified by repairs and rehab. Most will opt for an appraisal that will place that liability on the appraiser. There's also a 20% cap on this price difference before other rules kick in. Then an appraisal is definitely necessary, along with a full inspection report to the buyer about condition of all structural and mechanical components.

 All considered, there is a hope that this waiver will encourage more investors to take foreclosure inventory off the table, rehab it, and get new homeowners into these homes with an FHA loan.

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