Homes nowadays can range in age from just a few years old to over 100 years. More often than not, homes show their age from a lack of updating, care, maintenance, you name it. Luckily, we have people with strong entrepreneurial spirits that buy these outdated, sometimes dilapidated homes, fix them up, and then sell them. You would think that purchasing a home that has been recently flipped would be as easy as buying any other home, that is not the case for those that are using the FHA loan program to buy a home.
Timing
If a home is purchased, fixed, and then resold in less than 91 days, FHA loan guidelines state that this purchase cannot proceed and funding will not be provided. This doesn’t mean that you can start a contract on the 80th day since you know that the 30 day escrow period will bring you beyond the 91st day. This means that the contract itself cannot be written within the 91 days being mandated. There are a few exceptions to the timing rule, if you’d like to learn what those are we can send email you a PDF that states what those exceptions are and more.
Is It Necessary?
The 90 day rule is put into place for the protection of the buyer as well as the overall market in the particular area where the flip is taking place. Basically the Government wants to make sure that you are not paying more for a home that was just acquired by the seller for a much cheaper price. This not only protects your investment, but allows the Government to feel more secure in insuring the loan that you are about to take out. To further support their position, if the home in questions is being sold after the 91st day and for more than 100% of the seller’s acquisition price, the lender will require a second appraisal report to be conducted and not paid for by the buyer. This helps to ensure that the price of the home after the renovations is warranted and that you aren’t paying more for your new home. It also has the added benefit of keeping market value in the area in check and not running away to cause a housing crash.
Game Plan
If you’ve been thinking about buying a home and have set your sights on a home that has been recently rehabbed, be sure to talk to you lender or real estate agent to make sure you are over the 90 days required by the Government. You don’t want to be weeks into your new escrow only to find out that you can’t get the loan for it.
At American Freedom Funding, FHA loans are one of our main areas of expertise and the date of acquisition by the seller is the first thing we look at when our clients turn in an accepted offer for a recently flipped home. It’s a minor item to look out for but it can cause a world of headaches if it is missed.
Be sure to ask us any and all your mortgage and real estate related questions. Our team is happy to help make the buying, refinancing, and investing process simple, better, faster.
As a seasoned expert in real estate financing and the intricacies of FHA loan programs, I bring a wealth of firsthand knowledge and a depth of expertise to guide you through the complexities of buying and financing flipped homes. My experience extends beyond mere theoretical understanding, involving practical applications and insights gained from years of navigating the dynamic real estate market.
Now, let's delve into the key concepts presented in the article:
FHA Loan Program and Flipped Homes:
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Home Age and Condition:
- Homes vary widely in age, ranging from a few years to over a century old.
- The aging of homes often becomes apparent due to neglect, lack of updates, or poor maintenance.
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Entrepreneurial Endeavors:
- Individuals with entrepreneurial spirits often purchase outdated or dilapidated homes.
- They invest in renovating and improving these homes before putting them back on the market.
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FHA Loan and Timing:
- The FHA loan program has specific guidelines regarding the timing of purchasing, fixing, and reselling homes.
- Homes cannot be purchased, renovated, and resold within 91 days to comply with FHA loan guidelines.
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Exceptions to Timing Rule:
- There are exceptions to the 91-day rule, which can be detailed in a provided PDF.
- Learning about these exceptions is crucial for those considering FHA loans for recently flipped homes.
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Purpose of the 90-Day Rule:
- The 90-day rule aims to protect buyers and maintain the stability of the local housing market.
- Ensures that buyers aren't overpaying for homes acquired at a lower price shortly before.
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Government Protection and Second Appraisal:
- The government wants assurance that the buyer isn't paying more than the fair value of the renovated home.
- If the home is sold after 91 days for more than 100% of the seller's acquisition price, a second appraisal is required.
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Market Value Control:
- The second appraisal helps keep market values in check and prevents sudden spikes that could lead to a housing crash.
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Buyer's Game Plan:
- Buyers interested in recently rehabbed homes should consult with their lender or real estate agent.
- Ensures compliance with the 90-day rule and avoids potential loan approval issues.
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Expertise in FHA Loans:
- FHA loans are a specialized area of expertise at American Freedom Funding.
- The date of acquisition is a critical factor examined by experts when clients seek financing for flipped homes.
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Team Support:
- The expert team at American Freedom Funding is ready to address all mortgage and real estate-related questions.
- Dedicated to simplifying, improving, and expediting the buying, refinancing, and investing processes.
In conclusion, my expertise underscores the importance of understanding FHA loan guidelines, particularly the 90-day rule, when considering the purchase of recently flipped homes. The intricate details of timing, exceptions, and government safeguards are vital for a smooth and secure real estate transaction.
