How soon can a borrower sell the home purchased with an FHA mortgage loan? The answer depends greatly on circumstances, but there are a few things to keep in mind. FHA home loans are intended for owner-occupiers, not investment property, so borrowers will need to keep that in mind when learning about the requirements and restrictions on an FHA mortgage in this area.
In general, the FHA loan rules in this area are directed at the buyer’s side of the transaction. Owners are not prevented from offering property for sale, and FHA loan rules generally favor a home owner’s ability to freely sell property without restriction.
But if you want to sell your property to someone looking to buy with certain types of mortgage loans backed by the government (like an FHA mortgage), the time that has passed since loan closing and the new FHA case number will be important.
FHA Guidelines For Buying Recently Acquired Homes
FHA loan rules state that the seller of a property to be purchased with an FHA mortgage must be the seller of record, regardless of the amount of time that passes between the purchase of a home and its’ resale. “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’s from HUD 4000.1, the FHA loan handbook.
So the transaction must be between owner and purchaser, as per HUD 4000.1 page 145, which also has something to say about the timing of such sales, too:
“The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has 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.”
How much time must elapse before you, the owner, can sell to a buyer purchasing with an FHA mortgage? HUD 4000.1 states, “A Property that is being resold 90 Days or fewer following the seller’s date of acquisition is not eligible for an FHA-insured Mortgage.”
There are additional requirements:
“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.”
This portion of FHA loan rules includes a caveat that 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.”
Some of the rules in this section have some exceptions, which we will examine in another blog post.