FHA Flipping Guidelines For Home Buyers And Investors

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This BLOG On FHA Flipping Guidelines For Home Buyers And Investors Was PUBLISHED On February 13th, 2019

FHA Flipping Guidelines For Home Buyers And Investors

HUD, the parent of FHA, has come up with new FHA Flipping Guidelines for home buyers and real estate investors.

  • New FHA Flipping Guidelines were created after the 2008 Real Estate And Financial Meltdown
  • Days where properties gets flipped multiple times by investors prior to selling it to the end homeowner has long been gone
  • The government put every possible measure into place to avoid another real estate crash like the one we had in 2008
  • Home buyers with FHA Loans can buy property flips by real estate investors

However, they need to follow and abide by FHA Flipping Guidelines.

How FHA Flipping Guidelines Work And Who Needs To Be Concerned

How FHA Flipping Guidelines Work And Who Needs To Be Concerned

The real estate market has recovered.

There are two types of investors. Long term real estate investors. The second type are short term property flippers.

What Are Property Flippers And How FHA Flipping Guidelines Affect Them

What Are Property Flippers And How FHA Flipping Guidelines Affect Them

Real Estate Property Flippers are investors who purchase homes at a discount.

  • They buy homes in need of repairs, do renovations to it, and then sell it for a profit
  • The key to making the most profit for property flippers is to sell it as fast as possible
  • Many flippers use hard money loans
  • The longer they have the hard money loan out, it means high interest and less profit
  • However, there are mortgage guidelines when it comes to home buyers buying property flips

FHA Flipping Guidelines restricts real estate investors in selling flips fast. Lenders consider property flips as a property that has been purchased and flipped at a premium in a short period of time. Some property flippers can make over 100% return of their investment. Nothing is wrong with investors making double, triple, or more their investments. But HUD does have strict FHA Flipping Guidelines when it comes to FHA Borrowers buying flips.

90 Days FHA Flipping Guidelines

90 Days FHA Flipping Guidelines

Here are FHA Flipping Guidelines:

First, the seller must be the owner of record and the sale may not involve an assignment of contract.  Basically the person or entity on the deed must be the seller.  Next, lenders must obtain and submit documentation proving the owner of record to FHA / HUD.  Then, appraisers are required to provide prior sales of the subject over the previous 3 years.  The most restrictive rule is the 90 day FHA flipping rule.  HUD will not allow a buyer to purchase a home owned by the seller for less than 90 days. The purchase contract date must be 91 days after the recorded deed date.  Otherwise if less than 90 days, HUD will not insure the FHA Loan.  Therefore, lenders cannot close an FHA loan where the sellers has owned the property for 90 days or less.

FHA Flipping Guidelines On Homes That Were Owned For 91 To 180 Days 

FHA Flipping Guidelines On Homes That Were Owned For 91 To 180 Days

The way HUD calculates days of ownership by sellers on a property flip is the recorded date of the subject property in relation to the real estate contract date. FHA requires a minimum of a 90 day waiting period. There are FHA Flipping Guidelines on homes that are sold between 91 to 180 days.

 FHA Flipping Guidelines applies on the following conditions below:

  1. The sale of the subject flip is between 91 and 180 days
  2. If the home buyers purchase are buying homes where sellers are making 100% profit
  3. Borrowers has higher priced loan and the price is more than 20% over the seller’s acquisition price

If the above conditions apply, a second home appraisal needs to be ordered. Under FHA Flipping Guidelines, the home buyer cannot pay for the second home appraisal.

Lets take a case scenario:

  • Home buyer is buying a home from a real estate investor who is flipping the property for $200,000
  • The investor bought it for $100,000
  • Investor made over $100,000 profit which is 100%

Second appraisal needs to be ordered if the following apply:

  • Contract date on executed real estate purchase contract is between 91 and 365 days
  • Or if the buyer is buying the flip that is greater than 5% than the lowest recorded sale price of the property within the past 12 months

Exceptions To FHA Flipping Guidelines

Exceptions To FHA Flipping Guidelines

There are certain exemptions to FHA Flipping Guidelines. The following conditions are exempt from FHA Flipping Guidelines:

  • Home that are purchased by employers and/or relocation companies
  • Foreclosure homes by HUD
  • Government agencies owned homes pursuant to programs operated by these agencies
  • Homes purchased by non-for-profit agencies of HUD owned single family properties at a discount with resale restrictions
  • Homes acquired by the home seller through inheritance
  • Financial and government sponsored institutions and agencies
  • Local and state government organizations
  • Homes in Federal Declared Disaster Area

If an investor buys the above properties and decides to sell right away, then FHA Flipping Guidelines applies.

Buying Flips With Other Loan Programs

Buying Flips With Other Loan Programs

FHA is the only loan program with Property Flip Waiting Period Guidelines. Other loan programs such as VA, USDA, Conventional Loans have no property flip guidelines. HUD is the only agency that requires property flip waiting period and a second appraisal requirements on flip. For more information on property flips, feel free to contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

2 Comments
  1. Linda says

    I have a question regarding the 90 day flipping rule. The Sales contract, Appraisal, Hud Logging along with the Title all verify the last transfer date will be less than 90 days,
    However the lender wants to present a revised sales contract evidencing the date between the sales will become 91 days. The lender will have the appraiser make the changes to the appraisal, and update the connection to reflect 91 days.
    Is this acceptable to Hud ?

    1. Gustan Cho, NMLS 873293 says

      Yes. That can be done. Remember that two appraisals needs to be done. By law, the buyer can only pay for one appraisal. Either the lender and/or seller needs to pay for the second appraisal.

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