The Federal Housing Administration offers home loans that provide buyers with lower down payment requirements and more flexible lending standards than many conventional loans and other types of government loans. As a result, FHA mortgages are a terrific option for many home buyers – including home buyers interested in purchasing fixer uppers.
But what if you’re interested in purchasing a flipped home that has recently been fixed up by another owner? What if you’re hoping to use your FHA loan to finance a property that has just been flipped?
It’s important to realize that the FHA actually has a property flipping prohibition in effect. So if you’re looking to purchase a home that has been recently flipped, an FHA loan may not be the best mortgage option for you.
Purchasing a Flipped Property with an FHA Loan: What You Need to Know
It can be tricky to understand what the rules and guidelines are if you’re hoping to purchase a flipped property with an FHA loan.
Essentially, a property’s eligibility for an FHA loan depends on the time that has elapsed between when the seller (the flipper) acquired the property and the date that the sales contract for the purchase of the home will be completed and signed.
With that in mind, here are the main rules for FHA flipping, in a nutshell:
FHA Loans Cannot Be Used to Purchase Flipped Homes 90 Days or Fewer from When the Flipper Acquired the Property to When The Sales Contract is Executed By All Parties
In other words, you cannot use an FHA mortgage to finance the purchase of a flipped home that has been owned by the flipper for 90 days or less.
FHA Loans Can Be Used to Purchase Flipped Homes 91 – 180 Days from When the Flipper Took the Title to When The Title is Signed By the New Buyer BUT a Second Appraisal is Needed If The Sales Price Increases by 100%
If the resale date of a flipped property is between 91 and 180 days after the flipper acquired the property and the resale price of the home is 100% over the purchase price paid by the flipper to acquire the property initially, an FHA loan may be an option for the buyer. However, a second appraisal will be required.
This second appraisal will need to be completed by a second appraiser, and the appraisal cannot be paid for by the buyer. The second appraisal will need to provide documentation to support the claim of the home’s increased value.
Keep in mind that if the second appraisal suggests that the property’s value is more than 5% lower than the value assigned to the property during the first appraisal, the lower value should be used as the property value when determining its adjusted value.
FHA Loans Can Be Used to Purchase Flipped Homes 180+ Days from When the Flipper Took the Title to When The Title is Signed By the New Buyer
If you’re hoping to purchase a flipped home with an FHA loan without any restrictions or additional requirements, you’ll have to do so outside of the 180 day window.
Homes purchased more than 180 days after the flipper purchased the home can be financed with FHA loans with no additional qualifications required – assuming the buyers and the property meet the other FHA mortgage eligibility requirements.
Exceptions to the FHA Property Flipping Rules:
There are a handful of exceptions to the property flipping regulations that are important to be aware of as they may impact you. FHA property flipping rules do not apply to the following:
- Properties acquired by an employer or a relocation agency associated with relocating an employee
- Property resales by the Department of Housing and Urban Development within it’s real estate owned (REO) program
- Single family properties being sold by other US government agencies in accordance with the programs run by those agencies
- Properties sold by nonprofit agencies approved to purchase HUD-owned single family properties at a discount with resale restrictions
- Properties that were acquired by a seller through inheritance
- Properties being sold by state and federally chartered financial institutions and Government-Sponsored Enterprises (GSE)
- Properties being sold by local and state government agencies
- Properties within Presidentially Declared Major Disaster Areas (PDMDA) when a notice of an exception from HUD has been issued.
- Newly built properties being sold by a builder to a buyer planning to use FHA-insured financing
- Properties being built for buyers planning to use an FHA loan to finance their home purchase.
Think an FHA Loan Might Be Right For You?
Whether you’re purchasing a flipped house that meets the eligibility criteria, or you’re looking to purchase your own fixer upper, an FHA home loan could be a great way to finance your purchase.
Interested in learning more about FHA mortgages? Be sure to check out our Guide to FHA Mortgages for more information.
Hoping to Purchase a Flipped Home Without an FHA Mortgage?
If you’re looking to purchase a flipped home very shortly after the property was bought by the flipper, an FHA loan might not be an option. Luckily, we offer many other mortgage options that might be a good fit!
You can learn more about our variety of home loan options here.
Have Questions About Your Mortgage Options?
The FHA property flipping rules and regulations can be tricky to understand – and mortgage shopping as a whole can be a confusing endeavor.
If you’re curious about your home loan options and wondering how to determine what you’re eligible for, don’t worry! We can help!
At Maple Tree Funding, we’ll partner with you to help you understand your options throughout the mortgage process. Our team of mortgage professionals will work with you to find the home loan that works best for your specific home buying and financial situation. We’ll be here every step of the way to help answer questions and point you in the right direction.
Give us a call today at 518-782-1202or contact us online to get the conversation started.
Anxious to get the mortgage process underway? Get started with the mortgage pre-approval process today!
Posted in Guide to FHA Home Loans on Monday, March 16, 2020 by Maple Tree Funding
