April 27, 2017
Is a flipped home eligible for an FHA mortgage? That’s what one reader wanted to know this week. “What are the rules for buying properties that have been ‘flipped’ meaning an investor/homeowner has purchased the property did some updates and are now attempting to sale the property.”
“Are there any sort of timing requirements (i.e. a buyer cant buy before 6 months after seller has purchased property)? Also, is there any sort of maximum markup on the price the investor is attempting to sale for on the property?”
FHA loan rules in HUD 4000.1 are clear on this issue. According to page 146 of HUD 4000.1, “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 exceptions. An inherited home is not subject to this anti-flipping rule. Flipped homes that were purchased as part of a HUD sale of an REO home (a property that was in foreclosure with an FHA mortgage and now owned by HUD) are also exempt. A house for sale because the owner had a job relocation would also be exempt from FHA anti-flipping rules.
Note that these rules dictate whether or not an FHA loan is possible for the property, not whether the owner has the legal right to sell the home.
FHA loan rules are also clear about what is considered a flipped home. “Property Flipping refers to the purchase and subsequent resale of a Property in a short period of time.” The “90 day rule” mentioned above in association with property flipping may be a bit difficult for some-when does the clock start ticking on those 90 days?
HUD 4000.1 addresses this problem directly on page 145:
“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. 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 finally, to address the reader’s question about whether or not there is a markup restriction, FHA loan rules do not provide such a restriction, but the FHA loan amount would be limited to either the sale price of the home, or the appraised value/adjusted value, whichever is lower. FHA loan guaranty limits for the area would also apply.
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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