For quite some time the FHA frowned upon financing for buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses — often involving straw buyers and corrupt appraisers — at heavily inflated prices.
In Central Florida, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the “anti-flipping” rule.
The result was large numbers of foreclosed, vacant houses sitting unsold and deteriorating, with negative effects on the values of neighboring properties.
Last January, FHA Commissioner David H. Stevens announced a one-year suspension of that rule, permitting qualified buyers to obtain FHA mortgages on properties that were acquired by rehabbers less than 90 days before. The plan, set to expire at the end of this month, came with safeguards for purchasers, including inspections and multiple appraisals in some cases to document the amounts spent by investors on the improvements.
Over the last year we have seen that a majority of purchases taking place are derived by FHA loans. Working with both buyers and sellers we know the importance of being able to market to a huge portion of the buying public. Furthermore, some studies are suggesting that first-time homebuyers will increase by about 50% over the next year. Many of these first time homebuyers are not in financial position to be able to make cosmetic repairs and changes upon moving in, so the having the ability for investors to make these changes and still sell FHA buyers at a market price has been a win-win for both parties.