This BLOG On Issues Buying Property Flip And Issues Facing Home Buyers Was UPDATED And PUBLISHED On May 19th, 2020
First time home buyers or seasoned home buyers interested in buying property flip, they need to realize that lenders will have rules and regulations when buying property flip. A Home Flipping is when a home buyer purchases a property with the intention of re-selling it within a year after the home purchase. Buying Property Flip is also called fix and flip and house flipping.
- Most real estate investors who purchase a property with the intention of flipping it within 12 months normally purchase foreclosures or REO’s where is in need of repairs
- They normally purchase it with cash or a line of credit since the property cannot be financed
- Their goal is to spend as little money as they can and sell it for the most that they can as fast as they can
In this article, we will discuss and cover Buying Flips And Issues Facing Home Buyers,
Due Diligence In Buying Property Flip
- Homebuyers who buying property flip need to make sure of certain things to make sure that their home purchase will close
- Nothing is wrong with buying property flip
- However, lenders will scrutinize borrowers buying property flip within the past 12 months
Lenders have additional rules and regulations when it comes to financing borrowers buying property flip.
Lending Process In Buying Property Flip
Property flips used to be very common prior to the 2008 real estate and credit collapse.
- Prior to the real estate meltdown, real estate values have increased year after year
- Sometimes double-digits
- Many folks with no real estate experience became novice real estate investors
- Whatever property they purchased increased in property value
- These novice real estate investors made money just purchasing a home and selling it months later at a good profit
- They had multiple bids on their property, sold them, and continued the process
Then the major real estate crash of 2008 happened and real estate prices have plummeted.
Increased Popularity With Flipped Properties
- Real estate values have now stabilized and home flippers are back
- Since there are thousands of foreclosures and REO’s on the market
- Home flippers are purchasing these homes at bargain-basement prices and re-selling them within a year for a good profit
- Lenders are aware of this
- The government have implemented mortgage lending regulations concerning buying property flip
- Home flippers will purchase a home via foreclosure, sheriff’s sale, or REO
- House flippers remodel the home and list it back on the market
- Nothing is wrong with this
But homebuyers are buying property flip they may run into some obstacles on a home purchase that is a flipped property.
Two Appraisals Are Required On Flips
Home Buyers buying property flip, the lender will require a HUD from the seller of the property. Lenders will review the original purchase price of the flip and the selling price.
- If the subject property is being sold for a large profit, two appraisals will be required to make sure the value of the home purchase is justified
- If extensive work has been done, the lender will require proper building permits was pulled
- A home inspection may be required also by lenders
The lender will probably require an itemized list of all work that has been performed on the property.
Obstacles With Flips Where The Deal Does Not Close
Many property flippers do major renovations to the property without pulling the proper building permits, including additions.
- The appraisal review department of the mortgage lender will review the original square footage of the subject flipped property from the County Assessor’s Office
- They will compare it to the two appraisals
- If there are square footage discrepancies in the square footage from the original square footage from the county Assessor’s Office and the two appraisal reports, the lender will want to see why and most likely assume there was an addition done to the subject property
- The lender will want to see that the proper building permits were pulled
- If there were no building permits pulled and an illegal addition was done, then the seller of the flipped property will need to correct this problem by pulling the proper building permits
- This can cause major delays in closing on the home purchase or it may kill the deal altogether
- When buying a home that has been totally remodeled and is a property flip from the seller, make sure that proper building permits were pulled
- Anticipate two appraisals will be required prior to getting a clear to close and closing on a home purchase
Home Buyers who need to qualify for a mortgage with a direct lender with no mortgage overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org.