FHA Flipping Rules
There is a great opportunity with flipping properties that allow investors to make a profit while providing homebuyers greater options to shop. FHA property flipping has been a hot topic with the volume of renovations going on in Texas. Let’s review the basic rules and what you need to know about using an FHA loan for one of these properties.
FHA Flipping Rule – HUD breaks down the FHA flipping rule into two time periods:
- Less than 90-day ownership
- 91 – 180-day ownership
FHA Flipping 0 – 90 Days
The FHA flipping rule restricts the financing of a home with FHA insurance if the home was previously sold within the past 90 days. If the house was bought within 90 days and renovated that home cannot get a new FHA loan until the 91 days the property closed.
The FHA flipping rule also covers any home that was sold 91-180 days prior and is pending to be sold for 100% of the original cost. In this case, a second appraisal may be required per the FHA guidelines.
According to guidelines in HUD 4000.1, flipping is defined as follows: “Property Flipping refers to the purchase and subsequent resale of a property in a short period of time.” Flipping may or may not include the remodeling or rehabilitating of the home to increase its value.
The date the deed was recorded is when the clock starts ticking on the 90 day FHA flipping rule. FHA defines the resale date to be the date that all parties (buyer and seller) sign the new sales contract. Both the sales contract and the FHA case file ID must be assigned a minimum of 91 days after the initial deed was recorded.
FHA Flipping Example:
- A Seller purchases and closes on a property for $150,000 on January 1st
- A Seller remodels the home during the next 60 days and lists it for sale on March 1st
- A Seller and new buyer attempt to sign a new contract for sale on March 20
- If the new sales contract was executed after April 2nd(91 days) using an FHA loan, then FHA insured financing could be approved by the lender.
FHA Flipping 91 – 180 Days
The best time to purchase or sell utilizing an FHA loan is the 91st day, the restrictions are lifted at this point and you can proceed as usual. You could potentially be required to obtain a 2nd appraisal if the original cost of the home has increased by 100% of the new listed price met. If the property is between 91-180 days and is being re-sold using an FHA insured loan, the buyer will need a second appraisal if:
The resale date of a property is between 91 and 180 days following the acquisition of the property by the seller and the resale price is 100% or more over the price paid by the seller to acquire the property.
*If the property requirements are unable to meet the criteria above, then the waiting period will need to be 181 days.
Exceptions to the FHA Flipping Rule
The following are the only permitted exemptions to the FHA flipping rule:
Properties being resold by HUD or the REO program.
Properties being sold by other government agencies other than HUD.
Properties being sold by non-profit organizations that are approved for purchasing HUD-owned properties.
Properties purchased by an employer or relocation company for the sole purpose of relocating an employee.
Properties sold by Government Sponsored Enterprises (GSE).
Properties located in a Presidentially Declared Major Disaster Area (PDMDA) and approved by HUD
Also exempt are newly built properties where the borrower intends to use an FHA loan to finance the purchase.
FHA Flipping Rule Second Appraisal
- Must be from a different appraiser
- Buyer may not pay for the second appraisal
- Must include documentation to support increased value
- A lower value is used if the second appraisal is 5% lower than the first appraisal
- The lender must obtain a 12-month chain of title documenting resales
FHA is a great opportunity for any home buyer and a great option to allow buyers a great opportunity to qualify. For more information please contact us direct.
Texas FHA Mortgage Loans is the easiest mortgage and most lenient loan to qualify for. They offer a low down payment and are available to homebuyers with less than perfect credit.
For more information about FHA loans, their benefits and loan options and how it may apply to you, please contact us direct at 281-747-8242 or submit the quick quote form on this page.
