February 1, 2017
FHA requirements and FHA loan rules are designed to protect the lender in some cases, the borrower in others, and sometimes both at the same time. The FHA appraisal process, for example, is designed to insure that the home will be viable for the entire lifetime of the mortgage. That protects the bank’s investment and the borrower’s ability to refinance or sell the property later.
One set of FHA loan rules that seems to a have a definite consumer-friendly intent has to do with who is eligible to sell you the home you want to buy with an FHA loan.
HUD 4000.1, the FHA single family home loan rule book, has a section that outlines basic requirements for FHA mortgages. Those requirements include controls on who may sell you the home. According to page 140 of HUD 4000.1:
“To be eligible for a mortgage insured by FHA, a Property must be purchased from the owner of record. The transaction may not involve any sale or assignment of the sales contract.”
That does not mean that a real estate broker can’t help you locate a home to purchase with your FHA loan, but it does mean the person selling the property must be able to demonstrate that she or he is the owner of record. HUD 4000.1 explains how this is to be done; it is the lender’s job to verify the seller with the correct documentation:
“Such documentation may include, but is not limited to:
-a property sales history report;
-a copy of the recorded deed from the seller; or
-other documentation, such as a copy of a property tax bill, title commitment, or binder, demonstrating the sellers ownership of the Property and the date it was acquired.”
The FHA loan rules in this section add, “This requirement applies to all FHA purchase money Mortgages, regardless of the time between resales.”
The “time between resales” caveat is added because of the FHA stance on property flipping. In general the FHA does not permit flipping, as HUD 4000.1 states, “A Property that is being resold 90 Days or fewer following the sellers date of acquisition is not eligible for an FHA-insured Mortgage.”
Furthermore, “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; and
-the resale price is 100 percent or more over the price paid by the seller to acquire the Property.”
There are certain exceptions to time restrictions for resale of a property, including (but not limited to) transactions that involve HUD repo homes under the REO program, and property that a seller obtained via inheritance.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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