New FHA guidelines were issued on January 15 that is the best news yet to Short Sale Investors. The guidelines remove the 90 day seasoning requirements for Investors to gain clear title before a sale can take place to a new buyer who is being financed with an FHA loan. The waiver on the old guidelines takes place as of February 1.
There are several requirements outlined in the guidelines:
1. No multiple transactions on the chain of title within a 12 month period. This means one Investor cannot assign a contract to another Investor or to a different entity before the end Buyer transaction occurs.
2. There may not be more than 20% profit built into the deal without jumping through additional hoops. If more than 20% is warranted, then there must be a second appraisal, documentation pointing to extensive repair and renovation needed, including an inspection report. Inspection reports must include the main structural elements of the house and the main mechanical and electrical elements. Inspections must cover both exterior and interior condition, insulation, ventilation systems, fireplaces and other fuel burning appliances.
Even with a low end property, however, 20% yields a fairly decent profit, especially when you are just starting out in investing. On a $50,000 house the maximum profit without further justification can be $10,000, while on a $200,000 house the built in maximum can be $40,000. You can see how dramatically profit will vary just by increasing the value of the property that you go after in the Short Sale marketplace. Still, the new ruling makes it profitable and simpler to go after low end deals and to put first time Homebuyers in place with these transactions than before when FHA buyers were out of the question. The Homeowners will no longer be forced to wait for lengthy seasoning periods, and therefore fewer deals will fall through.
3. As in the past, all FHA transactions must be “arms length.” Do not try to transact a Short Sale flip with a relative or close associate.
4. The Seller must hold title to the property. Make sure that the A to B transaction closes completely with separate funding, and that the sale is officially recorded. For this reason, it still may not be possible to do a same-day closing with end Buyers with FHA loans; there may need to be a few days to get the deed recorded before the second transaction can take place.
5. Make sure that you are investing within an LLC or corporation that has been fully recognized and is legally set up. Do not try to invest using a DBA. FHA does recognize trusts, if legally set up, but we highly recommend that you use an LLC or corporation as your legal base for your business.
6. The deal must have been marketed. The FHA will recognize deals that were marketed publically through the MLS, an auction, FSBO service, or through a developer.
The original set of exemptions to the FHA’s 90 day rule were for REOs and other properties owned by state and federally chartered financial institutions and single family homes in revitalization zones. Those who inherited properties were exempt, as were certain non-profit corporations. Relocation agencies also fit within the original narrow scope of those organizations exempt from the original FHA rules.
Tuesday, January 19, 2010
Saturday, January 16, 2010
HUD repeals FHA 90 Day Title Seasoning for investor flips
WASHINGTON - In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.
"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization."
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.
"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said.
In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.
The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."
The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
* All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
* In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
* The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization."
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.
"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said.
In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.
The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."
The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
* All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
* In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
* The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Saturday, January 9, 2010
What is a Buyers Agent
If you are a member of Home Seller Assist you have probably wondered what a buyer's agent is.
Well, every seller who has a home listed in the MLS has a agent (realtor) as their “Agent”. That means that their agent is legally liable to help them in achieving the best deal for their property.
That means that when a buyer phones the listing agent, they are dealing with the seller’s agent.
As for a “Buyer’s Agent”, the buyer who uses one as their agent, has the same legal representation as the seller.
The best part – it costs the buyer nothing! Why? The agents simply split the commission already being paid to the seller’s agent by the seller at the closing table! So if you are buying real estate using the programs in the Home Seller Assist program (also known as We Provide The Cash), you may wish to consider using a buyer's agent the next time.
Well, every seller who has a home listed in the MLS has a agent (realtor) as their “Agent”. That means that their agent is legally liable to help them in achieving the best deal for their property.
That means that when a buyer phones the listing agent, they are dealing with the seller’s agent.
As for a “Buyer’s Agent”, the buyer who uses one as their agent, has the same legal representation as the seller.
The best part – it costs the buyer nothing! Why? The agents simply split the commission already being paid to the seller’s agent by the seller at the closing table! So if you are buying real estate using the programs in the Home Seller Assist program (also known as We Provide The Cash), you may wish to consider using a buyer's agent the next time.
Subscribe to:
Posts (Atom)
