In an advisory of lenders, FHA Commissioner David H. Stevens said the agency will again provided mortgage insurance for some purchases in which the seller had closed the property less than 90 days earlier.
The goal is to speed up sales of renovated homes to first-time home buyers and investors. With foreclosures at record levels—an estimated 2.8 million filings last year—many communities in the Baltimore area are faced with numerous Baltimore homes sitting unsold with the risk of being vandalized causing deprecation of surrounding properties.
“This is an excellent time for the investor and first-time home buyer for two reasons. Private investors will be more likely to bid on these houses, fix them up and sell them to buyers, who will now be able to gain early access to FHA financing, which offers 3.5 percent down payment,” said Ian Johnson, Pillar Property Group.
The FHA’s concern with the housing market has made them implement a new policy in the summer of a 10 percent down payment for those borrowers with less than credit scores below 580. This requirement and halting the flipping rule are due to the conditions of the market as well as the FHA being a catalyst of the housing market.
“For now, a potential home buyer can purchase a property selling for $100,000 and the FHA will finance $96,500 leaving the buyer to pay the remainder $3,500. Once this new policy is implemented, a new home buyer with struggling credit would have to pay upfront $10, 000,” said TJ Noye, Precision Funding.
FHA has outlined some definitions for investors:
• There is to be no conflicts of interest among buyers, sellers, realty agents or others involved in the deal are allowed. “All transactions must be arm’s length, with no identity of interest” among any the above mentioned.
• Price run-ups must be relatively modest and must be justified by documentation from the time the investor acquires the property to what is paid by the applicant seeking FHA financing. Generally, it will be 20 percent
If the price is higher, the lenders have the obligation to acquire supporting documentation and have a second appraisal on the property to verify that the seller has completed the sufficient legitimate renovation work to prove the increase in the value of the property.
Pillar’s Advice to the investor if renovation costs run high:
• Keep track of all your costs associated with the renovations of the property (i.e. closing costs, insurances, materials, labor, and other expenses related to the property).
• Always have the above information handy for the lender who might be considering an FHA loan on behalf of the applicant for the property.
“This good news for the housing industry because it opens up a huge market because just about anybody can currently get a FHA loan,” said Noye.