Property Flip And Mortgage Lending Guidelines For Buyers
This BLOG On Property Flip And Mortgage Lending Guidelines For Buyers Was UPDATED On August 10th, 2018
HUD and FHA have specific guidelines in place for purchase transactions where a real estate investor purchases a property, fixes it up and flips it to a buyer that will live in the property.
- This is often called a property flip
- Homebuyers and sellers can flip properties but need to know the basic mortgage lending guidelines with regards to a property
- Mortgage regulators have implements these mortgage regulations and rules in place for the same reason the other tens of millions of new rules and regulations have been put in place
- Rules and regulations on property flips were implemented and launched to protect consumers and avoid another real estate market crash
In this article, we will discuss and cover Property Flip And Mortgage Lending Guidelines For Buyers.
Recent Case Study Of A Property Flip
I recently had a borrower that had executed a contract for the purchase of a single-family home.
- I submitted the file and ordered the appraisal
- The appraisal came back with great value
- But showing that the property was purchased by the investor less than 180 days prior to the new contract being signed with the sales price over 100% of the original sales price
The HUD rule triggers a requirement that a new appraisal is ordered.
When A Second Home Appraisal Is Required
I decided to take both a closer look at the regulation and the appraisal before I spent the money for a new appraisal.
- The mortgage rule and regulation on a property flip is clear
- The date of the acquisition by the seller is the settlement date
- The date the property seller paid for the property and got the keys
- The buyer’s purchase date is the date he or she signs the contract
Not the date the seller signs and accepts creating a fully executed real estate contract, but the date the buyer signs and dates the initial offer.
Purchase Date Versus Recorded Date Of Property
The date my borrower signed the contract could not be in question.
- So I decided to take a look at the Cook County Recorder of Deeds web site
- Needed to see when the actual settlement took place
- That date it turns out was 11-24-2014
- In our case, the real estate appraiser used the date the seller’s purchase was recorded which was 1-14-2015
In Cook County Illinois, that’s fast. It can take months to get a deed transfer recorded.
Correct Dates And Waiting Periods
I knew this would be a challenge to get the appraiser to change the date on the appraisal;
- This is because as rule appraisers are never wrong
- Even when they are, they’re not
- I put together a package with the HUD regulation paying strict attention to fully explaining the dates and their importance in this particular transaction
- I also included the transfer deed from 11-24-2014 and evidence our seller paid the transfer taxes on that date
- I sent it to the AMC, Appraisal Management Company, for them to submit it to the real estate appraiser
- You’d probably say this is a stone-cold lock
- Slam dunk the appraiser would change the appraisal and we’d all live happily ever after
- We forgot that as a rule, appraisers are never wrong
- Many appraisers have developed egos and arrogance where it is impossible to deal with them
He said no, he was standing by his dates.
Appraisal Review On Property Flip
We brought their management staff in and they, of course, said the appraiser’s dates were correct even though we had completely destroyed their position:
- Our underwriter needed it to be changed in order to clear the file
- I finally convinced the AMC to include a note in the addendum exhibiting the settlement date
- They begrudgingly stated in the addendum that it seemed as though, based on documentation provided the settlement date was 11-24-2014
- Our underwriting manager understood that was all we were getting and OK’d the addendum
We cleared the final appraisal condition and the borrower was able to move into her new home. Buying a property flip can be rewarding because most property flips are gut rehabs and it is like purchasing a new home. On the flip side, mortgage lenders will scrutinize property flips due to strict mortgage lending regulations.