FHA lending guidelines derailing my first flip

[Rob Brewer]

Hey BP friends! First let me send a shout out to J Scott for the podcast he did with BP (episode #10 I believe). I thought you were describing my first flip!!

Here's my dilemma. Wholesaler purchased a home 4/4/13, I bought the home from wholesaler on contract and transferred title to my company 5/24/13. During that time I rehabbed it. I accepted an offer after only 7 days on the market! I was excited to say the least!

Buyers are using FHA financing as they don't qualify for conventional financing. Their lender says they can't underwrite the mortgage because there have been multiple title transfers and HUD rules say

"no pattern of previous flipping activity for the subject property as evidenced by multiple title transfers within a 12 month time frame".

How to other wholesale deals get around this issue? Do you just not sell to FHA financed buyers?

Thanks!

[J Scott]

Unfortunately, this is a big concern these days for rehabbers selling to FHA buyers. And this is why I recommend that rehabbers not buy deals from wholesalers where there is a title change upon acquisition.

If your end-buyer is likely to be FHA and you're going to buy from a wholesaler, I highly recommend that you and the wholesaler figure out a way to get you title without him ever taking title. And, even if he doesn't take title, if it's a private sale (not an REO), you may still have this issue (though title transfers through REO sales are exempted by FHA).

All that said, there are a few underwriters out there who will underwrite these types of deals, even for FHA purchases, but they are few and far between. I would suggest trying to find a non-FHA buyer at this point, and be very careful of this situation in the future.