Recently I have been getting a lot of questions from agents and buyers about the FHA “flip” rule. Basically, the FHA flip rule does not allow FHA buyers to buy a property which has had title change or been “flipped” in the last 90 days.
Some listing agents, not knowing exactly how the rule works, have begun to disallow FHA offers on their properties if they have recently been transferred, flipped, or foreclosed on.
Below are some bullet points regarding this rule and a link to the FHA website with the exact guidelines.
Property flipping rules:
FHA
FHA requires the seller to be owner-of-record for at least 91 days. If the seller is owner-of-record 90 days or less, the property is not eligible for FHA financing.If the seller has owned the property between 91 and 180 days, the sale price must be compared to the previous sale price on the appraisal report to determine whether the re-sale value has increased by 100 percent or more. If so, the increase in value must be supported with a second appraisal that includes a reasonable explanation for the increase (for example, significant improvements were made). If the increase in value cannot be supported, the maximum mortgage must be based on the lower of the two appraisals.
Some entities are exempt from the 90 day rule.
- Properties foreclosed on by mortgagees, their subsidiaries, as well as vendors hired by exempt entities to sell their real estate owned.
Note: This exemption is effective until May 10, 2010
Some entities are exempt from both the 90 day ownership rule and the 91-180 appraisal rule. See exemptions below.
- HUD Property Disposition Properties (HUD REO).
- Properties owned by employers or bona fide relocation agencies that
- contract with employers to handle the relocation of an employee.
- When a builder is selling a newly constructed home or is building a home for a FHA homebuyer.
- Inherited properties
- United stated government (federal) Agencies
- State and federally chartered financial institutions and Government
- Sponsored Entities (GSEs)
- Non-profit organizations approved to purchase HUD Real Estate Owned single family properties at a discount with resale restrictions (list available at: cfm.hoc_np/np/sfh/hsg.gov/offices/hudhttp://www.)
- State and local government agencies.
A flip transaction is generally defined as a purchase transaction for a property that has recently been acquired by the seller and is being sold for a quick profit. Many banks will not finance flip transactions. These transactions carry risk of inflated sales price, financial bailout, misrepresentation and/or straw buyers. Banks will review title work for evidence of several changes in ownership in the course of a few months. If the seller is not in title at the time the purchase contract is executed, the contract may not be valid. Title changes due to divorce, death, or marriage will be considered on a case by case basis.
Conventional
As always, if you need information on starting a new loan for the purchase or refinance of your home, contact me at trustyourlender@gmail.com
