Did you know as a buyer, you have to be concerned about flipped properties? You probably don’t think about it as the buyer. All you know is that the seller has a property that you want and you bid on it. FHA lenders have to follow FHA rules, though. The FHA 90 day flip rule prevents FHA borrowers from buying a home that the seller owned for less than 90 days. Keep reading to learn more.
The 90-Day Rule
Let’s start with the 90-Day Rule. It’s fairly simple to understand. The FHA lender must hire an FHA appraiser that will look at the last three years of the home’s ownership. If the last recorded deed is less than 90 days away from the new purchase contract date, the FHA lender must decline the loan.
As the buyer, you must wait until the seller owns the home for at least 91 days. At that point, you can sign a purchase contract and pursue FHA financing, but with restrictions.
Buying a Home Between 91 – 180 Days
Still using the date the deed was recorded, the FHA has further rules you must follow. If the seller bought the home within the last 91 and 180 days, you must determine if any of the following pertain to the property:
- Is the purchase price 100% or more higher than what the seller paid for the home?
- Do you have a higher-priced loan and the home’s sales price is 20% more than the seller’s purchase price?
If you answered ‘yes’ to these questions, you must get a second appraisal. The good news is that you don’t have to pay for it, though.
Here’s an example. The seller bought the home for $150,000. He now sells it to you for $300,000. The seller makes 100% profit on the home. The FHA will require a second appraisal to ensure that the home is worth $300,000 and that no fraudulent activity is taking place to get this sales price.
The FHA lender can also request a second appraisal if the seller owned the home for 91 to 365 days and the resale price is greater than 5% more than the home’s lowest sales price in the last year.
The FHA Exceptions
Fortunately, the FHA doesn’t consider every ‘flip’ bad. They do allow certain exceptions to the rule, including:
- Homes acquired by an employer or relocation company
- Inherited properties
- HUD resales
- Homes sold by nonprofit agencies
- Homes sold by government agencies
Non-FHA Loan Flipping Rules
The good news is that all other loan programs, including conventional, USDA, and VA loans don’t have home flipping rules. You can buy a home as soon as you want without worrying about seasoning requirements. Of course, you should always make sure you are getting a fair deal. All loan programs require an appraisal (one appraisal) to verify the home’s value. If a seller is trying to take advantage of you and charge more for the home to make a larger profit, the appraiser will catch it during the appraisal process.
The FHA flipping rules are in place to protect you. HUD doesn’t want borrowers buying homes that aren’t worth as much as they pay. While the process may seem frustrating, it’s there to help protect you financially.