Flipping Property
Tuesday, May 11th, 2010FHA Property “Flipping” Clarifications
A. Transaction must be arms-length:
i. Multiple title transfers in the past 12 months require additional review and may require additional documentation and/or may not be eligible for FHA financing. (Deeding the property to or from an individual(s) and an LLC, corp or trust may be allowed if the owners of the LLC, corp or trust are the same as the individual(s) that deeded it)
b. Property has to have been marketed openly and fairly.
i. Properties listed on MLS meet this requirement.
B. If sales price is less than 20% or more over seller’s acquisition cost then:
a. Normal appraisal underwriting policy applies
C. If sales price is 20% or more over seller’s acquisition cost and:
a. The increase in value is due to improvements/renovation:
i. Appraiser to verify what renovation, repair or work was done to the property to substantiate the increase in value. Dollar for dollar improvements are not required, however, the underwriter should review and analyze if the scope of work performed to the property would justify the increase in value; OR if appraiser cannot warrant that legitimate work was done to the property to substantiate the increase in value, a second appraisal supporting the value is required. (lower of the two will be used)
ii. In addition to the above appraisal requirements, the broker/borrower must obtain a home inspection report prior to loan approval. Until further guidance or a mortgagee letter is issued from FHA, additional requirements may apply.
b. The increase in value is not due to any significant improvements/renovation:
i. Appraiser to provide appropriate explanation of the increase in property value and provide sales comparables to support that value since the prior title transfer; OR if the appraiser cannot justify the increase in value, a second appraisal supporting value is required lower of the two will be used)
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