What Are FHA Flipping Rules?
FHA flipping rules refer to regulations implemented by the Federal Housing Administration (FHA). These aim to prevent fraudulent property flipping practices that can artificially inflate home prices and put borrowers at risk of default.
Under these rules, if a property is being sold within 90 days of its acquisition by the seller, the transaction may be subject to additional restrictions and FHA house requirements before it can be approved for an FHA-insured mortgage. These rules are in place to help ensure that the seller is not engaging in fraudulent activity. Activities such as artificially inflating the property value or misrepresenting the property’s condition can be avoided.
Some of the requirements that may need to be met include:
- The seller must be the owner of the record and have title to the property.
- The property must be marketed openly and fairly.
- The seller must not have acquired the property through foreclosure or short sale.
- The sale price cannot be more than 20% above the seller’s acquisition cost.
- A second appraisal may be required if the resale price is more than 100% above the seller’s acquisition cost.
These rules are in place to protect buyers and lenders from fraudulent property flipping practices that can harm the housing market.
The FHA 90-Day Flip Rule
The FHA 90 day flip rule is a regulation that applies on certain home sales:
- where the seller has owned the property for less than 90 days.
- where the buyer is using an FHA-insured mortgage loan to purchase the property.
This rule was implemented by the Federal Housing Administration (FHA) in an effort to curb fraudulent property flipping practices.
Under this rule, the lender may not approve a loan for the purchase of a property that was acquired by the seller within the previous 90 days. However, there are certain exceptions to this rule that allow for the sale to proceed without additional restrictions or requirements.
Some of the exceptions to the 90 day flip rule FHA include:
- If the seller acquired the property through inheritance.
- If the seller is a government agency or a HUD-approved non-profit organization.
- If the sale price is not more than 100% of the seller’s acquisition cost.
- Or If the property is being sold to an FHA borrower who is purchasing the property as a primary residence and has a documented need to move due to employment relocation, divorce, or other circumstances.
It’s important to note that some lenders may have additional requirements or restrictions beyond the FHA 90-day flip rule, so borrowers should consult with their lenders for specific guidelines.
FHA Flipping Guidelines For Sales Between 91 – 180 Days
For home sales where the seller has owned the property for between 91 and 180 days, the FHA has implemented certain guidelines that lenders must follow before approving an FHA-insured mortgage loan for the purchase of the property. These FHA flip guidelines are in place to prevent fraudulent property flipping practices that can artificially inflate home prices and put borrowers at risk of default.
Under the FHA flipping guidelines for sales between 91 days to 180 days, the following requirements must be met:
- The lender must obtain a second appraisal from an independent appraiser who is not affiliated with the seller or the first appraiser.
- The second appraisal must be at least 5% higher than the seller’s acquisition cost.
- The lender must provide the first appraisal and the second appraisal to the FHA for review and approval.
- The buyer cannot finance any part of the closing costs or the real estate commissions.
- The seller must provide documentation that shows the cost of any repairs or renovations made to the property.
It’s important to note that while the FHA 90-day flip rule applies specifically to FHA-insured mortgage loans.
FHA Flipping Rule Exceptions
There are several exceptions to the FHA flip rules that may allow for the sale of a property within 90 days of the seller’s acquisition without additional restrictions or requirements. These exceptions are in place to accommodate certain circumstances where the property is being sold for legitimate reasons and not as part of a fraudulent property flipping scheme.
Some of the FHA 90-day flip rule exceptions include:
- Sales by HUD of Real Estate-Owned (REO) properties.
- Sales of properties by nonprofit organizations approved to purchase of HUD-owned single-family properties at a discount with resale restrictions.
- Sales of properties that are acquired by the seller as a result of an inheritance.
- Plus, Sales of properties that are sold by a state or federally-chartered financial institution. If the sale is conducted in compliance with applicable state and federal laws.
- Sales of properties that are sold by a federal agency, including the Department of Veterans Affairs (VA) and the Federal National Mortgage Association (Fannie Mae). If the sale is conducted in compliance with applicable federal laws.
- Sales of properties that are being sold to a borrower who is using an FHA-insured mortgage loan and has documented proof of a legitimate need to relocate due to employment.
Non-FHA Loan Flipping Options
There are still other loan options available for financing a flipped property if you are unable to meet FHA flipping guidelines. While conventional and private lenders may have their own rules and limits for financing flipped houses, they generally have greater freedom than FHA lenders in this area.
Some non-FHA loan flipping options include:
Conventional loans are not insured by the government and may be more flexible than FHA loans when it comes to property flipping. However, lenders may still require additional documentation or have their own guidelines for financing flipped properties.
Private money loans:
Private money loans are made by individual investors or private lending companies, rather than traditional banks or mortgage lenders. These loans may have higher interest rates and fees than conventional loans, but may also have more flexible lending criteria.
Hard money loans:
Hard money loans are typically short-term loans that are made by private lenders or investors and are secured by the property. These loans may have higher interest rates and fees than conventional loans, but may also have more flexible lending criteria.
Seller financing occurs when the seller of the property provides financing for the buyer, rather than a traditional lender. This may be an option for a flipped property if the seller is willing to provide financing and the buyer is able to meet the seller’s lending criteria.
It’s important to note that these non-FHA loan flipping options may have their own requirements and restrictions. Borrowers should consult with their lender or the relevant private or institutional investor for specific guidelines.
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