House #16: FHA “Flip” Inspection

I mentioned in my last post that FHA was starting to make our lives difficult with the sale of The Probate House. Either because we’re reselling it so quickly (we just bought it in January) or because we’re marking it up 100% (from $70K to $145K, though much of that was spent on rehab and holding costs), FHA is making us jump through hoops before they will approve our buyer’s loan.

Late last week, we were told that we needed to get an FHA “Flip Inspection” from a qualified FHA field inspector and also that we’d need to provide all our of contractor invoices for the work that was done. Both of these requests seem a little weird. The inspection is weird because the underwriter has already seen a full inspection report from the buyer’s inspector and has already seen clean reports from two separate FHA certified appraisers. The invoices request was weird because they claimed it was to verify that we (the seller) did all the work on the house, and not the buyer; while that’s what they said, I am assuming they just want to verify that we actually did the work we said we did.

Anyway, the FHA inspector came to the house on Saturday morning. Before he got there, we had our handyman fix a few minor issues that we were concerned might get the attention of the inspector, including putting covers on a few electrical junction boxes, adding a drip line to the hot water heater, fixing an exterior door that was difficult to close, and covering up any evidence (like ceiling stains) of a roof leak that we had repaired last week.

The inspector spent about 2 hours at the house. He explained that he was doing a “flip inspection,” which I had never heard of, but from the name, I assume it was FHA’s way of ensuring that we weren’t shady investors looking to make a quick buck. In fact, he spent the first fifteen minutes grilling me personally on the work we did to the house; he was mostly concerned about the waterproofing work and mold remediation. It seemed like once he was confident that we actually did the work we said, and that once he was convinced that we actually did quality work, he basically decided to make the whole inspection process easy.

He pointed out a few things that needed to be corrected to pass FHA compliance, I agreed to have all the work done ASAP (which we will), and he indicated that he was satisfied. I hope that his report doesn’t indicate any issues and that we can actually overcome this little hurdle.

As for the invoices, I’m generally really good about getting contracts and invoices from all my contractors, but for some reason, there were a few jobs that I just didn’t collect any paperwork. Specifically, I never got a final invoice from my landscaper, and I never got invoices for the work we did after the buyer’s inspection (roof repair, electrical repair, rodent extermination). So, I’ll be scrambling first thing Monday morning to get those documents and get them to the underwriter.

We’re scheduled to close on Friday…who knows if that will happen or not, but my fingers are crossed…