1st Time Homebuyers, Blog

The FHA’s “Anti-Flipping” Rule and Dorothy, the Wannabe First Time-Homebuyer.

Once upon a time, there were fantastic loans widely available that were backed by government “FHA” insurance. Down payments as low as 3.5% were made available to encourage homeownership by The Wizards of Oz, and homebuyers flocked down the path of golden bricks. All was well in the land of first time buyers until the Wicked Witch of the East decided to throw a flying monkey wrench into the game and passed the evil anti-flipping rule (as codified in 24 C.F.R. § 203.37a) which prohibits the FHA from insuring loans on properties which have sold within the last ninety days. While the Good Witch of the North temporarily suspended the anti-flip rule, it is currently scheduled to go back into effect in June of 2009.

Thus, these days, even if you are a legitimate flipper (and add value to the property), the buyer won’t be able to get an FHA backed loan until your ownership is property “seasoned” – i.e., aged to perfection. The upshot: If you plan to flip to FHA buyers, expect that you’ll have to wait 90 days before you get the property under contract and then perhaps even longer get to closing. (This may not be a problem if you have a lot of work to do). This can be avoided by simply using conventional financing, but that eliminates a lot of buyers, and profits.

In our opinion, the anti-flip rule needs to go – all it does is discourage people from fixing distressed properties and making nice housing affordable to all, including Dorothy, the Tin Man, and the Cowardly Lion.