FHA Property Flip Guidelines
(Please note that agency/conventional loans do not necessarily have these rules, but many lenders have overlays that do have these restrictions…jumbos, some do some don’t…always check with me first-our Fannie/Freddie Direct products/conventional, typically allow flipped properties)
Once upon a time FHA didn’t have a restriction on the purchasing of a property recently acquired by the seller (AKA a “Flip”) … then along came the “FHA Prohibition on Flipping” provision, circa 2003. A brief waiver to the anti-flipping rules was provided by HUD back in 2014, but the waiver has since expired.
Today, we must abide by FHA’s strict rules surrounding flip situations – so make sure to pay close attention to the chain of title on your FHA purchases!
Here’s a summary of the current FHA guidance:
The term Property Flipping refers to the purchase and subsequent resale of a property in a short period of time.
The eligibility of a property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller acquired title to the property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.
FHA defines the seller’s date of acquisition as the date the seller acquired legal ownership of that property.
FHA defines the resale date as the date of execution of the sales contract by all parties intending to finance the Property with an FHA-insured Mortgage.
Resales Occurring within 90 Days or Fewer After Acquisition:
A property that is being resold within 90 days or fewer following the current owner’s date of acquisition is not eligible for an FHA-insured Mortgage.
Resales Occurring Between 91-180 Days After Acquisition:
A Mortgagee must obtain a second appraisal by another appraiser if:
- the resale date of a property is between 91 and 180 days following the acquisition of the property by the seller’s; and
- the re-sale price is 100 percent “over the purchase price” paid by the seller to acquire the property.
The required second appraisal from a different appraiser must include documentation to support the increased value.
If the second appraisal supports a value of the property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the property value in determining the adjusted value. The cost of the second appraisal may not be charged to the borrower. The Mortgagee must obtain a 12-month chain of title documenting compliance with time restrictions on resales.
Exceptions to FHA property flipping restrictions are made for:
- properties acquired by an employer or relocation agency in connection with the relocation of an employee;
- resales by HUD under its real estate owned (REO) program;
- sales by other U.S. government agencies of Single Family Properties pursuant to programs operated by these agencies;
- sales of properties by nonprofits approved to purchase HUD-owned Single Family properties at a discount with resale restrictions;
- sales of properties that are acquired by the seller by inheritance;
- sales of properties by state and federally-chartered financial institutions and Government-Sponsored Enterprises (GSE);
- sales of properties by local and state government agencies; and
- sales of properties within Presidentially Declared Major Disaster Areas (PDMDA), only upon issuance of a notice of an exception from HUD.
The restrictions listed above and those in 24 CFR 203.37a do not apply to a builder selling a newly built house or building a house for a borrower planning to use FHA-insured financing.
All the best,