When I first got into this business back in 2003, a house flipper would enter into a contract on the sale and money would be deposited in the bank 30 days later. Today, unfortunately, this is no longer the case.
Speaking with a friend of mine who was interested in conducting their first house flip, I realized there is a lot to know about this topic, that anyone going into their first flip needs to know. This is easily one of the topics that is less talked about, but crucial to understand and be mindful of.
What should investors be aware of:
Flippers should be aware of these terms and conditions when accepting an FHA offer from a Buyer. The goal here is to not have to learn the hard way.
A property must be owned by the seller 90 days before it can be sold to an FHA buyer. Contract date cannot be until the 91st day and closing 30 days after.
If a property purchase price by an FHA buyer is more than 100% of acquisition the seller paid within 6 months, a second appraisal will be required. The lowest of the two appraisals will be the appraised value accepted.
If an FHA appraisal comes back low and you cancel a deal for any reason including the appraisal amount then the FHA appraisal will be in the FHA’s system for 6 months. This means any other FHA buyer will not be able to get the property to appraise out higher. (if reported to FHA, if mortgage company doesn’t report, it doesn’t exist, but most do)
The FHA Inspection is part of the appraisal, not separate. The appraiser is just checking for standard safety measures such as peeling paint, GFI outlets near water, handrails by stairs etc.
If an FHA appraisal comes back with items needing repair, the items need to be addressed and completed before closing. A repair escrow may also be put into place for a post closing repair.
FHA is NOT a first time home buyer program only. Anyone can obtain an FHA loan
FHA loans often have much lower interest rates, so many buyers prefer FHA loans over conventional loans.
An FHA offer does NOT mean they have bad credit, in fact 87% of all FHA files closed in 2020 had a 700 FICO or higher.
Most real estate investing is knowing and understanding the rules. Once you know the rules of the game, you can craft and hone your skills accordingly to work within the boundaries of what you have to do to be successful. For all of the reasons above, don't be afraid of an FHA offer.
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