What is the 90 Day Flip Rule FHA


FHA Loan buy home

You are looking to get into the flipping home business. You need to understand the different rules and regulations when it comes to flipping. One rule you must know is the FHA 90-day flip rule. The 90-day FHA flip rule just says if a buyer is using FHA financing to buy the home that was just rehabbed. The seller cannot go into contract with an FHA buyer until the 91st day from the date it was bought by the rehab company.

There are some exceptions to the rule but they usually do not apply to people flipping homes. We will need to look at this more in-depth in case you are flipping a home and get an FHA buyer.

What does the rule say

Back in 2014, you could order a second appraisal to get past the FHA 90-day flip rule.  After 2014 that is no longer allowed and if you sell the home for double what you paid for it, you will have to get a second appraisal. The second appraisal is even after the initial 90 days are over.

You need to make sure that is calculated in the selling price of the home. I know it is not a bunch of money for an appraisal but it is an additional cost.

If you get someone not doing FHA financing then this rule would not apply.

Mortgage lenders and banks consider a flip as anything that is bought at a discount, held for a short period and sold for a good profit.

The FHA Flipping rules before 90 days

You know there is a 90 day waiting period on an FHA financed home. A second appraisal will be needed and the appraisal is not paid by the buyer. Here is what you need to know.

  • The property that is being flipped cannot be re-sold in 90-days or fewer following the date the property was acquired by the rehabber
  • The property would not be eligible for a mortgage insured by FHA
  • The date the property was acquired is considered the date of settlement on the purchase of that property being flipped
  • FHA considers the sale-date to be the date the sales contract was signed

The FHA flipping rules between 91 and 180 days

If you sell before 90 days or in-between 91 and 180 days you will need to get a second appraisal not bought by the buyer.

  • The lender is required to get a second appraisal on the home that was just rehabbed if the resale price is 100% or more over the original price of what the buyer that did the rehab paid.

We can look at this example:

An investor buys a home for $50,000 and then within six months sells it for $100,000. This is double the cost to acquire the property so a second appraisal will need to be done.

This appraisal will need to be done by a different appraiser with documentation supporting the rehab done makes the home worth $100,000.

You may need to show documentation showing how much the rehab cost and what exactly was done to the home to increase the value that much.

This cost will go back to the seller and not the buyer.

The FHA flipping rules between 91 days and 12 months

This one is similar to the 91 and 180 days but says if from 91 days to 12 months you sell the property to someone getting an FHA backed loan then you may need to do this.

  • Require additional documentation from the lender if the price that it is being sold at is 5% or more than the lowest sales price of the property the last 12 months.
  • They can also ask for a second appraisal from a different appraisal company

There are some exceptions to the FHA 90-day rule

  • REO Program(Resales by HUD) – resales of these types of properties
  • Nonprofits approved to be able to purchase HUD-owned Single Family properties
  • US Government agencies of single-family properties
  • If a property is bought by the employer for the relocation of an employee
  • Properties obtained through inheritance so if they want to resale once acquiring
  • Sales of properties by state and federally chartered financial institutions
  • Local and state government sales of property
  • Selling a property in Presidentially declared disaster areas
  • The restrictions above do not apply to a builder building a new house or building a house for a borrower planning to use the FHA-insured money

New builds – HUD will more fully address this issue through the issuance of the Federal Register notice provided for in § 203.37a(b)(4)(iv) of the final rule.

Date of property acquisition determined by the appraiser

Credits: https://entp.hud.gov/sfohlp/f17albkhlp.cfm

In addition, mortgage lenders may rely on information provided by the appraiser in compliance with the updated Standard Rule 1-5 of the Uniform Standards of Professional Appraisal Practice (USPAP). 

This rule requires appraisers to analyze any prior sales of the subject property that occurred within specific time periods, now set for the previous three years for one-to-four family residential properties.

As a result, the information contained on the Uniform Residential Appraisal Report (URAR) describing the Date, Price, and Data for Prior Sales for the subject property and the comparables is to include all transactions that occurred within three years of the date of the appraisal. 

Appraisers are responsible for considering and analyzing any prior sales of the property being appraised and the comparables that occurred within three years of the date of the appraisal.

Therefore, provided that the URAR completed by the appraiser shows the most recent sale of the property to have occurred at least one year previously, no additional documentation is required from the mortgage lender. 

The mortgage lender remains accountable for verifying that the seller is the owner of the record and may rely on information developed by the appraiser for this purpose if provided. 

However, if the lender obtains conflicting information before the loan settlement, it must resolve the discrepancy and document the file accordingly.

Summary of Property Flipping Regulations In Effect June 2, 2003
Prior Sale Occurred0-90 Days91-180 Days
Eligibility for FHA FinancingNot Eligible

 

·         Exceptions include relocation agencies and re-sales by employers to employees and sales by HUD of Real Estate Owned.

·         The HOCs cannot grant exceptions.

Eligible provided:

 

·         Re-sale price to FHA mortgagors is less than 100% greater than previous sale or

·         If 100% or greater than the previous sale, second appraisal supports value

Can you get around the 90-day flip rule?

You can if you have a buyer that goes with a conventional loan. There are people that will do conventional loans and not need FHA.

The trick is you have to find them when your house needs to be sold. You can really get lucky and someone offers you all cash for the home.

Quick flips

If you run into a situation where the flip you have is all cosmetic work. That means it will be less than 90 days for you to get the rehab done.

I would still do your normal marketing strategy to get a buyer so you have them lined up. If they are FHA then you will have to wait till day 91 to start the contract and purchase of the home.

If you can find someone with a conventional loan then that would be best. Once the 91st day hits if the FHA buyer is your best bet then start the contract and get the house sold.

Most flips will take longer or be right at 90 days so you will likely not have this issue come up too often.

Just make sure you keep it in back of your mind in case you get an easy flip that only needs cosmetic work done to it. These properties are the best ones to get when flipping homes.

You should know much more about the FHA 90 day flip rule. You will need to make sure you are past 90 days when going into contract with someone to buy the home.

Make sure you include the extra cost for the appraiser when doing the financials to rehab the home.

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