HUD Suspends FHA "Anti-Flip" Rule!!

If you follow me on Twitter, you will already know that I "re-tweeted" an earlier post from the California Association of Realtors regarding a temporary suspension of a HUD lending rule that has prevented many buyers from purchasing "flipped" homes.

What is a "flipped" home? As you can probably guess, this is when an investor purchases a home with the intent to resell it for a profit.

The rule has been that a buyer using an FHA loan can not purchase a flipped home until the title to the home has been held by the current seller for 90 days or more. A couple years ago, HUD excluded bank owned properties from this rule, as there is a change of title from the owner to the bank. Often times however, investors who are flipping property do some improvements to the property and list it within days or weeks of taking title to the property....it is not uncommon when I am looking for properties to show a buyer to see an agent-only remark in MLS stating something like, "Sorry, no FHA loans until 2/15/2010 due to anti-flipping rule." In fact, in 2008 I wrote a blog post about the anti-flipping rule when one of my buyer clients expressed interest in purchasing a flipped home.

Sooo....now, according to HUD, they are going to make an exception to their anti-flipping rule for one year. This new exception to the rule is effective begining February 1, 2010.

I will be VERY curious to see how lenders who fund FHA loans will react to this. Just because HUD will allow flipping, that does not necessarily mean that a lender will permit it. In fact, even with conventional loans, many lenders will not lend on a flipped property. Time will tell!

Buyers - be sure to ask your loan officer about how this rule may affect your ability to purchase a flipped property with an FHA loan. Do not assume that since this new exception to the standing rule has been made that you will be able to actually find a lending institution that will do it.