FHA Flipping Guidelines

FHA Flipping Guidelines For Home Buyers And Investors

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About FHA Flipping Guidelines For Home Buyers And Investors

The U.S. housing market is booming like never before. There is a major demand for homes that far exceed supply. Real estate investors have now come back in buying property flips and are making a fortune. Many agencies such as HUD, VA, USDA, Fannie Mae, and Freddie Mac are concerned about the skyrocketing home prices just from the demand side. Home prices have been increasing since 2013 with no sign of a housing correction. HUD and the Federal Housing Finance Agency have increased FHA and Conventional loan limits for the past five years in a row to skyrocketing home prices. In this article, we will discuss and cover HUD Flipping Guidelines on FHA loans.

The Booming Housing Market Has Many Investors Buying And Selling Property Flips

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 get flipped multiple times by investors prior to selling it to the end homeowner, have long been gone. The government put every possible measure into place to avoid another real estate crash like the one we had in 2008. Homebuyers with FHA Loans can buy property flips from real estate investors. However, they need to follow and abide by FHA Flipping Guidelines.

FHA Guidelines on Buying House Flips


How FHA Flipping Guidelines Work And Who Needs To Be Concerned

The real estate market has recovered. Many home builders on the brink of bankruptcy are now enjoying stellar record profits. Home prices have skyrocketed throughout the country. FHFA has increased conforming loan limits for the past five years in a row. Conforming Loan Limits for 2021 are now capped at $548,250. HUD has increased FHA Loan Limits for the past three straight years in a row.

HUD has been increasing FHA loan limits for the past five years due to skyrocketing home prices due to housing shortages. HUD has increased FHA Loan Limits for 2021 is $356,362. The reason for FHFA and HUD increasing loan limits is due to rising home prices. Many pre-approved home buyers are having a difficult time finding homes within their price range. Property flippers can offer great deals on homes they renovated and are flipping. There are two types of investors. Long-term real estate investors. The second type is short-term property flippers.

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 them, 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 restrict real estate investors from 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 on 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

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 

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 to 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 with a higher-priced loan and the price are 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.

Let’s take a case scenario:

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

The second appraisal needs to be ordered if the following apply:

  • The 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 Flipping Guidelines

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

  • A home that is 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

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 a property flip waiting period and second appraisal requirements on the flip. For more information on property flips, feel free to contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are experts in helping homebuyers buying house flips and getting them approved and closed on their FHA loan.  The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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  1. 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. 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.

  2. So if we are within 91-180 days of record, the seller purchased the home for 175k and is selling it for 234k, which is less than 100% profit. Will we still need a 2nd appraisal?

    1. Yes but the buyer cannot pay for the second appraisal. The seller or the lender needs to pay for the second appraisal.

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