A new law incorporated by the Federal Housing Administration, better known as FHA, has allowed for investors and home buyers a great opportunity. So far, this new rule is playing a major factor in the upswing in home sales. The new rule is set to expire in the first quarter of 2011. If you are an investor or home buyer in today’s real estate market, now is the time to act quickly.

Prior to the new FHA guidelines, a seller or investor was not allowed to “flip” a home if they had ownership less than 90 days. This rule was not only putting investors at a disadvantage but also the potential home buyer. With neighborhoods facing countless vacancies and foreclosures, FHA quickly realized they needed to make some adjustments to the current lending guidelines in order to help stabilize home prices and revive distressed neighborhoods.

The new rule is specifically designed for the investor who purchases distressed properties with the intention of reselling them after the updating and renovations have been completed. Most seasoned investors have been completing renovations sooner than 90 days after acquiring the property. The investors would then have to wait 90 days before placing the home back on the market. This very scenario is what prompted the FHA to change their guidelines.

The new guidelines have restrictions which discourage predatory practices within the transaction. This policy change however is helping buyers to take ownership of homes sooner and out of the hands of the investor. This is the catalyst to neighborhood stabilization.

Under the current temporary rules set forth by FHA and the U.S.Housing and Urban Development (HUD), one of the primary restrictions is the transaction must be an arms-length transaction. This means there can be relationship between the buyer and the seller or any of the parties involved. This restriction prevents homeowners from defaulting on their existing mortgage and later having a family member purchase the property from the investor at a much lower price.

Another restriction is if the property is resold for more than 20 percent above what the investor paid for the property; FHA will require two separate appraisals. These two appraisals will verify the current value of the home before and after the restoration has been completed by the investor. Often times, the investor will be required to provide receipts verifying the work that has been completed on the property.

The new FHA rule also states the title of the home must be held by the investor. The Deed to the property must be in the name of the investor or an entity such as a LLC, a Trust or a Corporation which operates within State and Federal guidelines. In addition, the chain of title cannot show multiple title exchanges within the last 12 months which could possibly be viewed as previous flipping activity.

Currently these FHA rules are set to expire on February 1, 2011. Both HUD and FHA have already begun discussing a possible extension but will depend if the sales data continues to show an upward turn throughout 2010. Their main focus will be sales in distressed neighborhoods and communities across the United States. As it stands now, the numbers show investors and home buyers alike are certainly benefiting from this new rule.

For more information on Phoenix Real Estate or Tucson Real Estate, please visit Real Estate Homes, LLC where you can search for all current homes for sale in the current market.

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