December 21, 2016
In general, FHA requirements and regulations discourage the practice of flipping, which is defined as buying a home (distressed or otherwise) and quickly reselling it at an inflated price.
According to the FHA loan single-family rule book, “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.”
HUD 4000.1 defines the sellers 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”.
Homes sold 90 days or less from the seller’s date of acquisition aren’t eligible for an FHA home loan. Homes put on the market between 91 and 180 days after the seller’s date of acquisition must heed the following from HUD 4000.1:
“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.”
However, FHA loan rules do mention some exceptions to these anti-flipping requirements. According to page 141 of HUD 4000.1, those exceptions are as follows:
“Exceptions to time restrictions on resale are:
-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 PDMDAs, only upon issuance of a notice of an exception from HUD.”
If you are unsure how the rules mentioned here affect your FHA loan transaction, speak to your loan officer about your specific concerns. Lender standards and state law may also apply where these transactions are concerned.