A 2019 CoreLogic report states that home flipping, the process of purchasing, renovating, and putting a house back on the market in a short period of time and often at a substantial markup, is at it’s highest levels in about eight years.
The CoreLogic report states, “…since the Great Recession, flippers have been increasingly good at acquiring properties at a discount, either because the properties were legally, financially or physically distressed”.
Some borrowers may be tempted to flip homes, and others may wish to purchase a flipped home. What does the FHA home loan program’s rulebook say about this practice?
HUD 4000.1 states that “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”.
That is not good news for property flippers hoping to sell to a borrower who wants to use an FHA mortgage. HUD 4000.1 adds, “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.”
Why is that information important to an FHA borrower? Because of the following from HUD 4000.1:
“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 exceptions, of course, as defined in HUD 4000.1:
-Properties acquired by an employer or relocation agency in connection with the relocation of an employee;
-Resales by HUD under its 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 (federal disaster areas), only upon issuance of a notice of an exception from HUD.
Borrowers should know that the FHA does not consider the sale of a new construction home to be property flipping. The rules quoted above are for homes that are already built.