HUD 90-Day FHA Flip Rule In Buying Property Flips
This BLOG On HUD 90-Day FHA Flip Rule In Buying Property Flips Was PUBLISHED On June 13th, 2019
Over the past few months, we have received a few phone calls regarding the HUD 90-Day FHA Flip Rule:
- In this blog, we will detail what the HUD 90 Day FHA Flip Rule is with FHA Loans and why it is a guideline
- We have had a few clients who have been pre-approved for an FHA loan put offers on homes that cannot be purchased with an FHA loan due to this timeframe rule
- Even though Gustan Cho Associates do not have any LENDER OVERLAYS, this Flipping Rule is a hard stop with FHA mortgages
- We wanted to take the time to educate our readers on this rule
In this blog, we will cover HUD 90-Day FHA Flip Rule In Buying Property Flips and the HUD Guidelines.
What Is The HUD 90-Day FHA Flip Rule In Buying Property Flips?
HUD 90-Day FHA Flip Rule was put in place by the Federal Housing Administration (FHA) on June 2, 2003, designed to prohibit illegal property flipping.
- You may ask, what is illegal property flipping?
- Illegal property flipping is when a person buys a property with the intent to re-sell it at an artificially inflated price for profit
- This holds true even though they have made little or no improvement to the property
- While this process has slowed down since the real estate crash, property flipping was a major issue in the 2000s
- This was a common way to make money in the real estate industry
- In order for this process to work, the original purchaser must find someone to buy the property quickly
- He may have a friend, or an acquaintance purchase the home for an inflated value
- Many times, the seller would pay the appraiser to artificially inflate the value of the property
This process is highly illegal. Please see the FBI Website for more information on this illegal process,
Here is the YouTube from FBI website:
Purpose For The HUD 90-Day FHA Flip Rule On FHA Home Loans
FHA’s flip rule was put in place to stop this process.
- A final ruling requires that a seller must own the property for a minimum of 90 days to be eligible for FHA insured financing
- The 90-day clock starts from the deed recording date which is the date when the seller stakes ownership
- FHA then goes on to expand the rule all the way up to 180 days
HUD 90-Day FHA Flip Rule Guidelines
Below we will discuss the differences between each 90-day period.
- FHA has established one of the most restrictive rules for property flipping
- FHA will not allow any financing of homes which are flipped in less than 90 days after the deed recorded eight
- FHA will not insure a mortgage if a property was not on for at least 91 days
- If the FHA will not allow FHA insurance on the loan, a lender will not be able to close an FHA loan that is not insurable
- Just because 90 days of past, does not mean you are in the clear
- Between days 91 and 180, FHA has rules regarding the appraised value
- Depending on the value of the property, a second appraisal may be needed
- Just a note, FHA do not allow the buyer to pay for the second appraisal
- A second appraisal will be required when the sales price is 100% more than the price the seller paid for it
- If the sales price is 20% higher than the original purchase, a second appraisal will be required
Quick example, the current seller of the home purchased this property for $125,000 85 days ago. The buyer would like to purchase his home with an FHA loan, the current sales price is now $250,000, meaning a second appraisal will be needed.
Are There Exceptions To The HUD 90-Day FHA Flip Rule?
Just like everything else in the mortgage industry, there can be exceptions. Certain types of transactions are excluded from the FHA flipping rule, here are a few examples below:
- If a property has been acquired by a relocation agency or employer in connection to a relocation for work
- Meaning if you are relocating for work, you may purchase a home with an FHA loan even if it is owned by a relocation investor for less than 90 days
- If the property is a HUD owned property. of course, if the property is owned by HUD, illegal property flipping will not come into play
- This exception also applies if the home is owned by other government agencies or approved non-profit agency
- The sale of the property acquired through inheritance
- If a family inherits a property, they may sell the home to a buyer utilizing an FHA loan even if they have not owned the property for 90 days
- If the property being sold as in a declared major disaster area, Army issue a notice of exception to the flipping rule
- This is not happening quite some time
How To Tell If A Home Was Purchased In The Past 90 Days?
Since the sale and transfer of real estate is public record, this information is accessible to everyone.
- The issue you may run into is, not every County records this information instantly
- Meaning you could purchase the home and the information will not show up for a period of time
- Depending on the county, this can take up to a few months
- Real Estate websites such as Zillow, Realtor.com, and Trulia have great tools to show when homes are sold
- You can also look directly on the website of the county home is located in
See example below:
Example of a ZILLOW LISTING will show the public records below.
How To Start Applying For An FHA Loan
Once you are ready to apply for a home mortgage, please gather the following information:
- Last 60 Days Bank Statements – to source down payment
- Last 30 Days Pay Stubs
- Last Two Years W2’S
- Last Two Years Tax Returns
- Driver’s License
It is now time to reach out to Gustan Cho Associates. Please call Mike Gracz on 630-659-7644 or text us for faster response. Either Mike or one of his highly-skilled loan officers will help you get pre-approved. You will be sent an application link for the state you are buying your home. Your loan officer can then work on your pre-approval. Our loan officers are up to date on all mortgage guidelines and our experts in mortgage financing without lender overlays. 75% of our clients have either been turned down by another lender or not getting the customer service they deserve. If for any reason you do not qualify today, we will put you on a financial plan to qualify for your dream home as soon as possible.
Starting The Mortgage Process With A Direct Lender With No Lender Overlays
Gustan Cho Associates Mortgage Group is a one-stop shop for all your mortgage financing needs. For more information on the FHA Flipping Rule, see FHA MORTGAGE LETTER 99. Gustan Cho Associates at Loan Cabin offers FHA, VA, Conventional, USDA, and NON-QM mortgage products. We do not have LENDER OVERLAYS creating additional obstacles for our clients to get over. We encourage our readers to check out our reviews, they are excellent. We are available seven days a week for any mortgage-related questions.