The real estate market in many areas of the United States is currently fraught with an odd mix of different ownership levels. For instance, in the metropolitan Phoenix area, approximately 3/4 of the homes sold in the month of June 2009 were either bank-owned (foreclosures) or short sales (where the lender agrees to take less than what is owed on the home to circumvent the foreclosure process). The other 30% were comprised of either owner-occupied “traditional” sales, or investors “flipping” properties.

It is important to understand that when financing a property through either FHA (Federal Housing Administration) or conventional financing (Fannie Mae or Freddie Mac backed loans) there are certain restrictions regarding the previous 90 day history of the property ownership that may affect your ability to get a loan. For instance, FHA has a 90 day “flip rule” that has been in force for many years, which restricts a purchaser from being able to finance any property that has not been held in ownership for more than 90 days. With the recent flood of bank owned properties, they modified the rule to allow foreclosed homes being sold by the banks to be exempt from the “flip rule”, thus this type of ownership change is not subject to the waiting period.

Traditional sales and investor properties are subject to the flip rule, and due to the price declines and the speculation that some areas have hit a bottom in the market, an increase in investor activity is spurring more “flip” transactions. It is these properties, where investors often purchase in cash and quickly rehab the home and place it back on the market for resale, that the potential purchasers need to do their homework on if they plan to make an offer.

As stated previously, FHA’s “flip rule” is hard and fast for non-foreclosed properties – you cannot get financing until the 90 day period is passed. As far as conventional financing, although they do not have a 90 day rule persay, most if not all lenders will have restrictions on properties that have been bought and sold within 90 day.

So what do potential buyers need to do to avoid financing snags? Do your homework. Either using public records, your real estate agent or mortgage professional, research the property sales history prior to making an offer if you plan to use traditional financing methods. Being proactive is always a good choice!

Readers, if anyone has experienced a snafu due to the 90 day flip rule, please share your inputs with a comment!

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