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Thinking of Flipping a Property in 2011?

Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions.  Both Conventional and FHA financing is allowed on property flips as long as all guidelines are met. Many of the guidelines overlap, i.e., must be arms-length, seller listed on title report, etc. There are a few differences as to when and if a 2nd appraisal is required.  Below is a list of the requirements for all property flips, in general if ownership has changed within 12 months for Conventional financing and 90 days for FHA financing. General Property Flip Guidelines· No seller financing allowed, usual seller contributions towards closing costsallowed.· Property must have been exposed to the open market through MLS, traditional auction, or developer marketing.· Buyer and seller cannot be represented by the same agent or broker.· No re-dating of purchase contract.· Seller must be listed on title report.· No simultaneous closings.· No more than 1 title transfer, other than a financial institution or government agency, within the last 12 months.· If ownership is in a LLC or corporation, a full review of the legal documents is required to ensure buyer is not affiliated.· Must be arms-length.  For Conventional financing, generally property flip guidelines will be required if seller has owned property less than 12 months.  Cannot be purchased as investment property· If seller is on title less than 90 days, maximum financing for buyer is 80% LTV.· 2 full appraisals required if new sales price is 15% higher than what seller paid.  If  increase is less than 15%, an exterior-only appraisal is required (in addition to the 1st appraisal). New value must be justified through appraisals. Appraisal cannot be done concurrently.· Lender will use the lower of the two appraised values for decisioning.

FHA Financing in the past, FHA financing was not allowed on properties if the seller had owned the property for 90 days or less, no matter if there was an increase in value or not.A waiver is now in place for contracts dated Feb. 1, 2010 through Feb. 1, 2011, allowing financing as long as they meet the guidelines mentioned previously. Enhanced guidelines are required for increases in price of 20% or greater:· A 2nd full appraisal is required. Appraisals cannot be done concurrently.· New value can be justified through the appraisals with complete details of property improvements. If no improvements were made but property was originally bought well below market value and is now selling at market value, this  must also be addressed.· The lower of the two appraised values will be used for decisioning.· A full property inspection must be provided to the borrower.· Both the inspection and the 2nd appraisal can be paid by the borrower.· Any health and safety issues noted in the appraisals or inspection report would need to be repaired prior to closing. Full inspection of the repairs would also be required.If seller has owned the property between 91 – 180 days, no additional requirements unless new value is 100% greater than what seller paid. If  so, then the above requirements must be met.

From Mike Harper

Bankers Funding Trust LLC

Dave & David Warner

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  1. January 26, 2011 at 10:55 PM

    Fantastic article, ive been visiting your articles daily and really impressed with the information on your site. Thank you.

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