Financing A Flipped Property In Arizona

AZ Flip Mortgage Rules

HOW DOES FINANCING A FLIPPED PROPERTY IN ARIZONA DIFFER FROM BUYING A NON-FLIP
A flipped property is the residential/real estate version of a certified used pre-own car.  If done correctly, a flipped Phoenix area home is the result of an investor buying a run down property, rehabbing it and then reselling the previously beat up property as a nice “new” shiny home to a lucky buyer.  A adequate flipped home is a great “ready to move in” investment for its new homeowner.

What is so special about the process of buying a flipped property?  The mortgage underwriting requirements associated with obtaining a home loan in order to purchase a property that is considered a flip differ from the guidelines for a mortgage on a non-flipped property purchase.  Before we talk about why this is (see below) let’s look at how each different type of home loan views a flipped property and what unique underwriting guidelines apply:

FHA FLIP GUIDELINES:
FHA categorizes a property as a flip or “quick sale” when an investor sells it within 90 days of the date they purchased it for themselves.  Special FHA flip guidelines apply to a buyer using an FHA loan to purchase a flipped home that is being sold for 120% or more than what the seller paid for it.  The price used to determine seller’s cost does NOT include any rehab costs and may only included what a seller paid for the property.

Special FHA flip requirements:
1. FHA requires that 2 appraisals be completed on the subject property (the buyer cannot pay for 2nd appraisal) – the lower of the 2 appraised values must be used to determine the FHA loan amount.
2. FHA requires a HUD home inspection to be completed on the subject property – any items listed on the inspection that violate FHA’s safety, soundness or security property related standards must be addressed prior to the close of escrow.
3. Seller must be the owner on record prior to the date the buyer’s contract is signed.

We offer FHA financing on flipped properties – for more detail on FHA flips click HERE

*FHA flip financing is currently allowed however this is based on a temporary waiver of the flip rules listed in section 24 CFR 203.37a(b)(2) in the FHA rule book.

CONVENTIONAL FLIP GUIDELINES:
Conventional flips
are only allowed right now by Fannie Mae direct which means your lender must have a relationship with Fannie Mae in order to close your flip transaction (unless they have a portfolio/self serviced product).  Fannie Mae categorizes a property as a flip when the subject property is being resold by an investor within 120 days from the date they purchased it OR the date they took title/ownership of the property.

Special Conventional Mortgage flip requirements:
1. UW pulls an automated valuation estimate (similar too going to zillow but much more accurate) to see if the current sales price is relative and accurate considering the contract sales price.  If, based upon the automated valuation estimate the underwriter is not 100% comfortable with the value on the appraisal they may require either a 3rd party review of the original appraisal ordered by the buyer’s lender OR they may require that a second appraisal be ordered.  If a 2nd appraisal is required the lower of the 2 appraised values must be used to determine the buyer’s Conventional loan amount.
2. Buyer must provide 3 consecutive months bank statements (rather than the standard requirements of 2 consecutive months).
3. Seller must be the owner on record prior to the date the buyer’s contract is signed.

We offer Conventional financing on flipped properties

VA FLIP GUIDELINES:
VA does not maintain any special flip guidelines.

USDA FLIP GUIDELINES:
USDA does not maintain any special flip guidelines.

JUMBO FLIP GUIDELINES:
The JUMBO market is not a uniform/standardized market meaning that there is not one single set of guidelines that governs all JUMBO loans. Flip regulations differ from product to product in the JUMBO market.

Now that you know what special hoops to jump through on your flip financing adventure, you may be asking “why does my lender care that I am buying a flip?”  A fair question.  While it would be noble if investors were in the flipping business to simply provide a great home for a buyer to purchase, the truth is they flip to make a profit.  As a result both FHA and Conventional guidelines have been put into place to make sure that a home’s price is not over inflated.  In the end, these extra guidelines protect you the buyer as well.

Please call or email me today with any questions you may have regarding the purchase of a flipped property.

By Jeremy House
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AZ FLIP MORTGAGE RULES

 

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Jeremy is the Founder of The HOUSE Team and a Sr. Loan Officer/Branch Manager with PrimeLending. Over the past several years he has ranked in the top 1% of all loan officers nationwide and one of the top 200 loan officers in America. In the mortgage industry, the devil is in the details. Jeremy prides himself on being a student and an expert when it comes to everything mortgage related.

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