FHA flips and what you need to know

Click here to see the original waiver.

This means that buyers may use FHA financing to purchase a home that was previously purchased by the seller within the past 90 days.  Before this waiver an FHA purchaser was required to wait until the seller had owned the property for at least 90 days.

Summary of the waiver:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.  The lender is looking for the following:

Seller holds title to the property

LLC’s, corporations or trusts that are serving as sellers were established in accordance to the law

NO pattern of previous flipping as evidenced by multiple title transfer in the last 12 months (this is a big one to look out for)

Property was marketed open and fair

In cases where the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will only apply if the lender follows these criteria:

Justify the increase with supporting documentation and/or a second appraisal (2^nd appraisal cannot be paid for by the borrower)

A property inspection must be ordered by the lender and the inspector can’t have an interest in the property or relationship with the seller.  The cost can be passed onto the borrower at closing.

The property inspection will be reviewed by the Mortgage Underwriter and repairs may be requested.  (Underwriter is primarily looking for health and safety issues)

Please note that if the sales price of the property is less than 20% above the seller’s acquisition cost the above does not apply.

The purpose of this article is to articulate some of the most common benefits of utilizing a FHA loan to finance a home purchase in Phoenix.  The first bolded sentence is what many real estate professionals believe to be truth.

1. Phoenix FHA mortgage interest rates are higher than conventional. With tiered FICO pricing on conventional loans, FHA loan rates can actually be lower than conventional. The minimum FICO score required on a conforming loan before the borrower has to pay more points or a higher rate is 740. Using FHA financing, a 660 FICO score gives the buyer the same interest rate as someone with an 800 FICO score.
2. Phoenix FHA loans are more expensive for the seller than a conventional loan. While this was true before 2006, this is no longer correct with FHA loans. Prior to Mortgagee Letter 2006-04, there were substantial costs involved that the buyer was not allowed to pay. Now, the only cost the buyer cannot pay is a $75 tax service fee (fee may vary from lender to lender – AmeriFirst Financial does not have this fee). This makes a FHA loan much more attractive to Phoenix sellers.
3. Phoenix FHA loans require more paperwork. In prior years dating back to 2000 and before, FHA loans required much more paperwork and documentation than conventional loans. Now, there are only about seven additional application documents, when compared to a conventional home loan, which a buyer needs to sign.
4. Mortgage Insurance cannot be removed on a FHA loan. When a homebuyer obtains a 15-year fixed FHA loan with 10% down payment, FHA requires NO mortgage insurance (MI). However, if MI is obtained, it must be held for at least 60 months.
5. Phoenix FHA loans take too long to close. Today’s conventional loans have many of the same fraud detection requirements similar to FHA.  Most banks require 4506-T’s for all borrowers, a verification of deposit and employment, and Social Security verification through Rapid Reporting.  In house underwriting makes closing a FHA loan fast and efficient. David and his team can process FHA home mortgage loans in less than 30 days, and sometimes in little as 12 days.
6. Phoenix FHA loans don’t benefit the buyer. FHA is the only loan with less than 5% down (3.5% down payment) in Arizona. MI is reasonable when compared to lower down payment conventional loans. Underwriting requirements are less strict on debt to income ratios and reserves.  Buyers can also use non-occupying coborrowers to help qualify, as long as they are relatives.  All of these things benefit buyers. There are VA, USDA and HomePath home loans that offer a lower down payment, but those are only applicable to Veterans and property specific homes.
7. You need money to close as a buyer. All down payment and closing cost funds can be gifted by an acceptable source. The buyer can actually close without having any of their own money into the purchase.
8. Phoenix FHA loans don’t benefit the seller. This is probably the most significant myth still active in today’s market. In truth, a 3.5% down payment with less than perfect credit and minimal cash reserves is a HUGE benefit to sellers in Phoenix.  
9. Conventional Financing is better than a FHA loan. In today’s market, conventional loans are much harder to close and the MI is more difficult to obtain. In my opinion, FHA is the best loan out there today for a buyer with a low down payment.
10. Buyers don’t understand FHA loans. It is very easy for even the most unsophisticated person to understand the numerous benefits of FHA. In years of the past, it is true that some FHA calculations were complex. This is no longer reality.
11. The Government gets involved in the FHA loan process. AmeriFirst Financinal, and many other mortgage bankers, control the entire process from application to funding.  AmeriFirst can complete the transaction quickly and meet timelines with zero interference from the Government.

Your Realtor is very sharp and has many years of experience selling homes in Avondale, AZ. You make it through the inspection period with no items needing repair. Your Realtor gives your lender the go ahead to order the appraisal. The FHA appraiser returns the completed appraisal with a value equal to the sales price. You’re feeling terrific because you’ve just locked in an incredibly low interest rate of 4.25%, which is fixed for 30 years, on an FHA home loan.

Everything seems to be moving along smoothly, until you get a call from your Loan Officer. He sounds concerned and you immediately begin to panic. The lender has declined your loan because the house has a shared well for water, which is connected to more than four homes. You don’t understand why your loan was declined? Your Realtor doesn’t understand either; he has sold many homes in this area without a problem, which were also financed.

The reason some lenders cannot finance a home with a shared well connected to more than 4 homes, is that it doesn’t fall within the standard FHA loan guidelines. Prior to 2007, many of the homes in Avondale, AZ were financed with conventional financing. Therefore, very few Realtors and Loan Officers ever experienced a problem with this specific circumstance. Self-admitted, many industry professionals need to educate and enhance their knowledge of FHA guidelines. It is possible for this home to be financed under FHA guidelines; however, it will require some additional documentation, more work from everyone and probably a few sleepless nights. Hopefully, you are working with educated professionals that will be able to alleviate many of those restless nights and extra stress!

This was an actual scenario we experienced with one of our referrals. Luckily, we were able to fund this client’s loan after he received a loan denial from another lender. Although in order for this loan to work, there are a few specific requirements that need to be met. If you’re currently considering purchasing a home with a shared well connection to more than 4 homes and need some assistance, please contact The Krushinsky Team at 602-456-2195.

Let’s take a trip back in time and describe why the availability to finance a home with the $100 Down Payment HUD Home Program arose.  During the housing boom, many of the homes in Phoenix were financed with Conventional loans.  Prior to the run-up in home prices, many first-time homebuyers used FHA loans to purchase housing.  Once home prices started rising at unsustainable levels; homeowners began to refinance their FHA loans into Conventional loans to pull cash out, remove mortgage insurance, and lower their monthly obligations.  Once these homes, now with Conventional financing, went into foreclosure, the banks began to sell their inventory at a discounted price.  At the beginning of 2007, many of the new homebuyers were forced to use a FHA loan due to inability to finance their purchases with Conventional mortgages in Phoenix.  These homebuyers were unknowingly still buying homes at inflated home prices.  Sadly, many of these homes purchased in 2007 and 2008 with FHA loans are currently going into foreclosure.  In most cases, the current values of these homes are significantly less than what is owed.  The $100 Down Payment HUD Home Program is a result of a FHA borrower foreclosing and HUD repossessing the home that is now for sale.    

So Who Qualifies? 

 Now that you’ve been able to determine you may be able to qualify, here is an outline of the next steps you need to take.

Step 1 — Get pre-qualified for the $100 downpayment HUD Homes Program

Step 2 – Choose search area and type of home (i.e. North Phoenix - 3 bedroom, 2 bath with 1,500 square feet or more)

Step 3 – Create a login and password at our customized database to search homes

Step 4 – Contact us to match you with one of our Realtor partners that can assist you with viewing the homes you are intrested in.  Please note, not all Realtors are trained and educated for HUD homes.  It’s very important to work with one of our preferred partners that has experience with HUD homes.

Step 5 — Submit an offer, get acceptance and go through the loan process.

Step 6 — Close on your purchase using an FHA-insured loan.

It can be a very simple process but the first step is to get pre-qualified.

Your Realtor is very sharp and has well over twelve years of experience selling high-end homes in Arizona.  You make it through the inspection period with no items needing repair.  Your Realtor gives your lender the go ahead to order the appraisal.  The FHA appraiser returns the completed appraisal with a value equal to the sales price.  You’re feeling terrific because you’ve just locked in an incredibly low interest rate of 4.875%, which is fixed for 30 years, on an FHA home loan.

Everything seems to be moving along smoothly, until you get a call from your Loan Officer.  She sounds concerned and you immediately begin to panic.  She tells you that the lender has turned down your loan because the house has a shared well for water, which is connected to more than four homes.  You don’t understand why your loan was declined?  Your Realtor doesn’t understand either; he has sold many homes in this area without a problem, which were also financed.   

The reason some lenders cannot finance a home with a shared well connected to more than 4 homes, is that it doesn’t fall within the standard FHA loan guidelines.  Prior to 2007, many of the homes in Arizona were financed with conventional financing.   Therefore, very few Realtors and Loan Officers ever experienced a problem with this specific circumstance.  Self-admitted, many industry professionals need to educate and enhance their knowledge of FHA guidelines.  It is possible for this home to be financed under FHA guidelines; however, it will require some additional documentation, more work from everyone involved, and maybe even a few sleepless nights.  Hopefully, you are working with educated professionals that will be able to alleviate many of those restless nights and extra stress!

This was an actual scenario we experienced with one of our referrals.  Luckily, we were able to fund this client’s loan after he received a loan denial from another lender.  Although in order for this loan to work, there are a few specific requirements that need to be met.  Please contact David to find out exactly what is required.

 • Do I have two years of steady employment, preferably with the same employer?  In most cases, school may be considered part of your employment history. 

• Can I document my last two years’ income with tax returns, W-2′s, or 1099′s?

• Does my credit report have less than two thirty day late payments in last two years? Also, do I have a credit score?

• If you had a Chapter 7 Bankruptcy, has it been discharged for at least two years and has good credit been re-established?

• If you have had a foreclosure or short sale, has it been finalized for at least three years and has good credit been re-established?

• Will my new mortgage payment not exceed 45% of my gross income and debts combined.

If you have answered “yes” to all of the above qualifications, than you are probably a good candidate for an FHA home loan.  Below is a helpful list detailing some important FHA Guidelines and steps to getting prequalified.

Documents Needed - Please click here for a list of items we will need in order to submit your loan.

Income - When you are qualifying for a loan, we will use your gross income.  That means all the money you earn before taxes, including overtime, commissions, dividends and any other sources –as long as you can show a steady two year history for these sources.  You can calculate your monthly housing payment by clicking here.

Credit - If you are unaware of your credit score, you can contact us today to pull your credit history. Most lenders require FHA borrowers to have at least a 620 or better mid-FICO score in order to be approved.  FHA will also allow some minor past credit issues, as long as the borrower can provide a “reasonable” letter of explanation for the situation.  If you have a Federal Tax Lien, which currently has a repayment agreement, you do not have to pay it off in full provided you are able to qualify with the monthly payment stated within the repayment agreement.  State Tax Liens typically must be paid in full prior to closing your FHA loan.

Bank Accounts - FHA will allow for a homebuyer to receive the down payment for the purchase of a home as a “Gift” (meaning you do not have to pay it back), from a close family relative or a non-profit organization. When receiving a “Gift”, you must provide the complete paper trail of the funds being gifted to you.  Such as the donors bank statements, withdrawal slips and deposit information.

These are not all of the requirements, but a good starting point.  We highly recommend getting prequalified for an FHA mortgage through a qualified mortgage professional.