In today's real estate market we see many purchases that are properties which were recently foreclosed on and now being sold by the bank. This has been a reality of a market that has at times and in certain areas seen more bank owned properties as conventional home sales. As a result of the decline in prices we have also seen an increase in properties being bought by investors, often on a cash basis, cleaned up and then put back on the market for resale, very quickly. For these particular cases, what you may have heard as, as the 90 day flip rule, comes into play. And while it is not a deal breaker, it is important to know how things work in a quick re-sale situation.
The Federal Housing Administration has for many years had a 90 day flip rule in place, to prevent the buy and quick resale of a home within 90 days. Likewise, while there was no rule in place for conventional loans, backed by Fannie Mae and Freddie Mac, many lenders followed suit and did not allow for financing, for the resale of properties within 90 days.
However, in recent years this rule was lifted by the FHA and allowed for ownership change and immediate resale of a property in the case of a property being foreclosed on and resold. Initially, the ruling pertained just to banks that would obtain homes through foreclosure. Or in other words, if the seller of the property was the bank and it obtained the home through foreclosure, then no restrictions existed.
However, that is no longer the case, as the resale of properties within 90 days by private sellers, be it an investor or anyone else, is now permissible in many cases with both FHA and conventional loans.
The real key to making sure that the sale is permissible really has to do with the difference in sales price from the price that the first buyer bought the home at and is now re-selling to a second buyer at. Or in other words, if someone buys a home and re-sells it to a second buyer within 90 days and the new sales price is 20% or less above the price that the first purchaser bought the home at, then the transaction will most likely be permissible.
However, if a property is re-sold within 90 days with sales price of more than 20% of what the first buyer bought the home for, then documented improvements (aka proof of money being spent to fix or upgrade the home) must be shown to have been made to the home by the first buyer, to warrant the new sales price. In addition, there will also often be two appraisals needed in these cases as well.
Thus, when it comes to properties being bought and re-sold within 90 days in the current market, there are definitely options for financing such a transaction. The key is to make sure that the transaction fits the latest guidelines in this type of situation.
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