June 22, 2016
One type of frequently asked question that sometimes pops up involves whether or not FHA mortgage loans have any restrictions on the resale of a home. While FHA loan rules require a borrower to be free to sell the property whenever they wish, there are certain time restrictions on the resale of a home when it comes to purchasing a “flipped” house with an FHA mortgage.
Specifically, HUD 4000.1 has a section dedicated to this practice, and addresses it accordingly. According to Page 140 of HUD 4000.1, “flipping” is defined as follows:
“Property Flipping is indicative of a practice whereby recently acquired Property is resold for a considerable profit with an artificially inflated value, often abetted by a Mortgagees collusion with an Appraiser.”
This practice is restricted when it comes to purchasing a home with an FHA loan. “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 adds, “FHA 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.”
And what does the FHA loan rulebook in this section say about a borrower’s general ability to purchase a flipped home or what appears to be one? “A Property that is being resold 90 Days or fewer following the sellers date of acquisition is not eligible for an FHA-insured Mortgage.”
There are, however, exceptions. These are listed in HUD 4000.1 as follows:
— 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.
State law and lender standards may also play a role in these types of transactions, so it’s best to have a conversation with a loan officer to see what may be possible.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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