FHA Flipping Rule
House flipping has become very popular and profitable for those who know the process. HUD has developed an FHA flipping rule for anyone who is thinking about financing a flip using an FHA loan. This rule impacts both the buyer and the seller of a flipped property.
What is the FHA Flipping Rule?
The FHA flipping rule restricts the financing of a home with FHA insurance if the home was previously sold within the past 90 days. There are a few exceptions which would allow for FHA financing within the 90-day window.
The FHA flipping rule also covers any home that was sold 91-180 days prior and is pending to be sold for double the original cost. In this case, a second appraisal may be required per the FHA guidelines. Read our article on the FHA Guidelines.
How Does the FHA Define Flipping?
According to the guidelines within 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.
- The 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 Rule Example:
- Seller purchases the property on January 1st for $200,000
- Seller slightly remodels the home during the next 60 days and lists it for sale.
- Seller and new buyer attempt to sign a new contract for sale on March 20th
*If the new sales contract was executed after April 2nd (90 days), then FHA insured financing could be approved.
FHA Flipping Rule for Sales 91-180 Days from the Original Purchase
Once you have passed the 90 day mark, it becomes much easier to finance the property with an FHA loan and most of the restrictions are lifted. 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
- The resale price is 100% or more over the price paid by the seller to acquire the property.
*If you 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.
Another exemption that you may be able to secure from your lender is if you did not intend to flip the home but soon after closing, you were relocated for your job. In this case, you likely would have little to no appreciation in the home value and with documentation from your employer, potential buyer may be able to be approved for an FHA loan.
How to Buy a Home Despite the FHA Flipping Rule
Whether you are the one flipping the home or the buyer of a home that was recently purchased, there is always a way to deal with the FHA flipping rule. The first suggestion is to negotiate with the buyer or seller.
If the home has recently been remodeled after the purchase, it probably took at least 45-60 days to finish the construction. As a result, you are likely sitting between 60-90 days after the purchase with only about 30 days remaining.
The carrying costs for the seller may be only a couple of thousand dollars which can be negotiated into the final price of the home. The seller can also contribute money to help the buyer to secure financing other than an FHA loan. Another option is for the buyer to rent the home from the seller until the purchase can happen after the waiting period is over. Then, they can just stay after closing.
FHA Flipping Rule Summary
The FHA flipping rule is not something that too many home buyers will encounter. In the event that you are interested in a home that was recently purchased, you can see there are ways to deal with the flipping rule. This should not prevent you from buying or selling a home.
Is there a 90-day flip rule for conventional loans?
There is a rule which limits homes to be sold for only up to 120% of the original purchase price within the first 90 days (ie only 20% profit). After 90 days, you can sell the home for any amount.
Is there a seasoning period for FHA loans?
If you are delinquent or have defaulted on an FHA loan, there will be a 3 year waiting period before you can get another FHA loan. They key component here is whether the FHA had to pay an insurance claim to the lender.