Real estate has seen a surge in the trend of buying older homes, renovating them, and selling them for a profit. This is particularly attractive for homebuyers looking for modernized properties. However, if you're eyeing one of these remodeled homes and planning to use an FHA loan, it's crucial to be aware of the FHA flipping rule to avoid surprises during the transaction.

The FHA 90-day flipping rule dictates that a seller must own the flipped property for more than 90 days before potential buyers can use an FHA loan to purchase it. Typically, sellers involved in property flipping seek distressed homes, renovate them, and then sell them for a profit. FHA loans, being government-backed and having less stringent financial requirements, offer an option for buyers with higher debt or less-than-ideal credit scores.

Flipping, according to the FHA and HUD, is "the purchase and subsequent resale of a property in a short time." The 90-day timeline is crucial for FHA lenders, divided into two categories: less than 90-day ownership and 91–180-day ownership.

For the FHA 90-Day Flip Rule, lenders must confirm property ownership for the past three years through appraisals. If the timeframe between the new sale contract and property ownership is less than 90 days, FHA lenders are likely to reject mortgage approval. Buyers must wait at least 91 days before securing an FHA loan for the property.

In the case of sales between 91–180 days with a purchase price 100% or higher than what the seller paid, a second appraisal is required. This appraisal must meet specific criteria, including the involvement of a different appraiser, no buyer payment for the appraisal, a 12-month chain of title, consideration of a lower appraisal value if 5% higher than the first, and supporting documentation for increased property value.

There are exceptions to FHA flipping rules, such as resales by government agencies, properties acquired through employee relocation, inherited properties, sales by nonprofit organizations, and those in disaster areas permitted by HUD. New construction properties are also exempt.

If FHA financing is not viable due to the property being acquired less than 90 days ago, alternative options include VA loans, USDA loans, or conventional loans. However, it's essential to understand the specific criteria for each loan type. We at Home Financial are experts in each of these loan types.

In conclusion, the FHA flipping rule can impact the process of buying a flipped home with an FHA loan. Exploring alternative financing options and understanding the criteria for each can help buyers find the most suitable solution for their needs.

If you are ready to start taking advantages of the benefits of being a homeowner, head to the link to apply now!

Scott Eckles
Branch Manager Home Financial