4 min read May 10, 2024

FHA Flipping Rule: What Buyers Need to Know in 2024

Flipped homes are homes that have been resold in a short span of time to earn profits. Over time, the market for homes that have been turned around significantly increased.

The proportion of homes that were flipped in 2022 made up 8.4% of all home sales. It is already at 9% as of 2023. It’s important to understand all the guidelines if you plan to use an FHA loan to buy a house that has already been flipped.

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🚀 Key Takeaways

  • FHA flipping rules protect buyers from buying worn-out properties. Also, it protects the investments of FHA lenders.
  • A few exceptions to the rules include inherited properties, disaster-hit zones, government-owned properties, and more.
  • In case you don’t qualify for an FHA loan, there are alternatives such as conventional loans, VA loans, and USDA loans.

What Are FHA Flipping Rules?

Property flipping means the purchase and resale of any property in a short span of time. While buying a property, the FHA rule protects the buyer’s interest.

The buyers will have to abide by the 90-day flip rule if they plan to purchase a flipped home with an FHA loan. There are a few situations where FHA financing is possible within the 90-day window.

Apart from this, there are FHA guidelines other than the FHA flipping rules to protect the buyer’s interest. These guidelines are strict as compared to other lenders’ guidelines, which include:

The 90-Day Flip Rule

The lender requires the FHA appraisals to check whether the property falls under the FHA 90-day flip rule. If the 90-day rule applies to the property, the lender is likely to reject the loan.

This rule protects borrowers and lenders from investing in worn-out properties. Hence, as a buyer, you should wait for 90 days before you can buy a flipped home.

The 180-Day Flip Rule

Any home that the seller sells between 91 and 180 days for twice its original price is also subject to the FHA flipping rule. According to FHA guidelines, a second appraisal might be necessary in this situation.

A second appraisal helps the lender verify whether the seller is asking for a fair value on the house. The second appraisal must meet the following guidelines:

  • The second appraiser can’t be the same as the first one.
  • The buyer need not pay the appraisal costs.
  • The lender must obtain a 12-month chain of title.
  • The lender considers the lower value if the second appraisal value is 5% or higher than the first.
  • The seller must present the relevant documents to support the price increase.

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Exceptions to FHA Flipping Rules

FHA flipping rules come with a few exceptions, which include:

  • Properties sold by government agencies like the HUD
  • Newly built properties
  • Homes sold by non-profit organizations
  • Inherited homes
  • Properties owned by relocating employers or agencies
  • Properties located in Presidentially Declared Major Disaster Areas (PDMDA)

How to Buy a Flipped Home Without an FHA Loan?

You cannot buy a flipped home through an FHA loan if the seller hasn’t owned the property for at least 90 days. However, there are different types of loans that you can apply for:

The FHA flipping rule requirements are not applicable to these loans. You must, however, adhere to their particular requirements.

Bottom Line

If you’re looking to buy a recently flipped house, you must ensure the mortgage complies with the FHA flipping rules and guidelines. However, there are some exceptions to FHA flipping rules, such as inherited homes, newly built properties, etc.

Apart from this, there are some alternatives that’ll allow you to buy a flipped home. These alternatives include government-backed loans such as USDA loans and VA loans.

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Frequently Asked Questions

Can you buy a flipped home with an FHA loan?

You can get an FHA loan to buy a flipped home. Nonetheless, you must follow all FHA flipping guidelines.

Can you use a 203k loan to flip a house?

You can use a 203k loan to flip a house only if it is your primary residence.

What is the FHA 12-month rule?

As per HUD 4000.1, the FHA 12-month rule ensures the borrower's reputable credit history with a clean repayment record. The FHA 12-month rule prohibits borrowers from getting the loan if they have gone through foreclosures, short sales, or bankruptcy in the past 12 months.

What is the FHA mortgage rate for 2023?

As of September 2023, the national 30-year FHA mortgage APR is 7.56%.

What is the FHA front-end ratio for 2023?

The front-end DTI ratio for FHA loans is limited to 31%. Whereas, the back-end ratio is limited to 43%.

Can you buy a foreclosed home with an FHA loan?

Yes, you may use an FHA loan to purchase a foreclosed property as long as it is in living condition, which means it meets FHA assessment criteria. Read Can You Buy a Foreclosed Home With an FHA Loan blog to know more.

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