The rule, originally enacted in 2003, was written to curb the practice of flipping houses by preventing the FHA from insuring mortgage loans on homes that were bought and then sold again within 90 days. The thinking was that there was a lot of “predatory” flipping happening often involving collusion with lenders and appraisers which was resulting in homes with artificially inflated values.
After the real estate bubble burst the FHA first suspended this rule in 2010 in an effort to reduce the excess inventory of homes, especially foreclosures. Many of those foreclosed homes were also in need of at least some level of rehabilitation which made them great candidates for flipping. Since the first suspension of the anti-flipping rule it has been extended three times including this most recent extension.
The FHA press release says, in part: “Through the regulatory waiver, FHA encourages investors that specialize in acquiring and renovating properties to renovate foreclosed and abandoned homes, with the objective of increasing the availability of affordable homes for first-time and other purchasers, helping to stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high. The waiver is applicable to all single family properties being resold within the 90-day period after prior acquisition, and is not limited to foreclosed properties.”
The obvious benefit of this continued suspension for flippers is access to buyers. By some estimates the FHA finances as much as 50 percent of all purchases made by first time home buyers. According to the National Association of Realtors® first time home buyers accounted for 39 percent of all home purchases in 2012. That is not an insignificant number of home buyers.
The other thing that is significant for investors is the potential to reduce carrying time and costs. The potential to reduce the amount of time a house is held can put thousands of dollars in the pocket of a real estate investor through reduced carrying expenses and by allowing them to possibly flip more houses in a given period of time.
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