Flip transactions are hard to handle

There is all kinds of confusion in the real-estate market concerning “flip transactions”.

Generally speaking a “flip” is a transaction where a private investor or property speculator has purchased a property at a discounted rate.  The discount may have come from the fact the property was distressed, damaged, or simply under-valued by the institution or Realtor who sold it.  The investor will generally do some structural and/or cosmetic repairs and then attempt to resell the property in order to make a profit.

Unfortunately, a slew of new and existing guidelines from Fannie Mae and the FHA, expanded underwriting criteria which varies from bank to bank, and additional risk over-lays used by loan brokers are causing for a confusing set of rules.  Investors who want to “flip” properties, and those consumers who want buy them, can become easily confused about what type of financing is available on these transactions.

Consumers, Realtors, and even some lenders are confused and angered about the specifics on how to underwrite a loan on a property which has been flipped.

Some banks follow the FHA guidelines to the letter and only scrutinize properties which have been flipped within the last 90 days.  Other lenders are expanding this extra level of scrutiny and review to any property where the property has been sold, OR title to the property has been transferred in the last 12 months.

Here is the bottom line- if you are trying to buy, sell, or refinance a property which has been previously sold in the last 12 month, you are going to run into delays, additional underwriting requirements, and maybe a loan denial.

If attempting to get a loan on a flipped property, here are a few of the problems that may be encountered during the transaction:

- Lender simply refusing to do the deal

-Lender requiring 2 appraisals – one of which may have to be paid for by the seller

-Additional down payment requirements

-Lender requiring proof of upgrades, repairs, or money spent by the seller to increase the value of the property

Here are a few things Realtors and clients can do to help clear up the confusion early and help to avoid potential delays on flip transactions:

-Inform your lender immediately if the offer you are writing is on a house which has been sold in the last year

-Try at all costs to avoid writing a purchase contract within 90 days of the most recent title transfer on a property

-Get a copy of the preliminary title report to your lender as soon as possible

-Require the listing agent to be at the appraisal on any flipped properties in order to answer questions about upgrades

-Be mentally prepared for delays OR request a longer escrow period

It is important to keep in mind that guidelines change frequently.  As the number of flip transactions increase in your area, be sure you are working with a well-informed and trusted lender.

As always, if you have questions, don’t hesitate to contact me at TrustYourLender@gmail.com