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What is the FHA Flip Rule?

What is the FHA Flip Rule?

Short Answer:

A rule that prohibits the purchase of a property using FHA financing that has been recently sold in the past 90 days. Properties recently sold in the past 91 days to 180 days may be purchased using FHA financing, but require 2 appraisals vs the normal 1 appraisal.

Longer Answer:

When it comes to purchasing a home, the Federal Housing Administration (FHA) offers a variety of loan options available for homebuyers. As with each mortgage program, FHA has specific rules governing how the program can be used. One of the more unique FHA rules is the "Flip Rule." This rule can significantly impact the buying and selling process, so understanding it is crucial to avoid canceling contracts.

What is the FHA Flip Rule?

The FHA Flip Rule is a regulation set by the Federal Housing Administration to prevent property flipping, which is the practice of buying a property and quickly reselling it for a profit. The rule is designed to protect buyers from inflated property values and ensure that homes are sold at fair market prices.

Key Aspects of the FHA Flip Rule

  1. 90-Day Rule: The primary component of the FHA Flip Rule is the 90-day waiting period. According to this rule, a property must be owned by the seller for at least 90 days before it can be sold to an FHA borrower. If a seller has owned the property for less than 90 days, an FHA loan cannot be used to purchase it.
  2. Second Appraisal Requirement: If the property is sold between 91 and 180 days after the seller acquired it, and the new sale price is 100% or more above the price the seller paid, a second appraisal is required. This second appraisal is to ensure that the property value is justified and to prevent inflated prices.

What are Exceptions to the FHA Flip Rule?

The FHA Flip Rule has several exceptions that allow certain transactions to bypass the 90-day waiting period and other requirements. Here are the key exceptions:

  1. Inherited Properties: Properties acquired through inheritance are exempt from the FHA Flip Rule. This means that if you inherit a property, you can sell it without waiting for the 90-day period to pass.
  2. Government Agencies: Properties acquired from government agencies such as HUD, the Department of Veterans Affairs (VA), or the Federal National Mortgage Association (Fannie Mae) are exempt from the rule.
  3. Nonprofit Organizations: Properties sold by nonprofit organizations approved to purchase HUD-owned properties at a discount are also exempt from the FHA Flip Rule.
  4. Relocation Agencies: Properties sold by relocation agencies that purchase homes from employees being relocated are exempt from the rule.
  5. Resales by Employers or Relocation Agencies: Properties sold by employers or relocation agencies to employees who are being relocated are exempt from the rule.
  6. Sales by State- and Federally-Chartered Financial Institutions and Government-Sponsored Enterprises (GSEs): Properties sold by these entities are exempt from the FHA Flip Rule.
  7. Sales by Local and State Government Agencies: Properties sold by local and state government agencies are also exempt from the rule.

How is the period of time caculated for the FHA 90 Day Wait Period?

The dates for the FHA Flip Rule are calculated based on the acquisition date and resale dates of the property. Here’s how the calculation works:

  1. Acquisition Date: This is the date when the seller officially takes ownership of the property. It is typically the date when the deed is recorded in the public records. Sometimes it can take time for a deed to be recorded by the government, which could delay the start of the 90 days.
  2. Resale Date: This is the date when the new buyer signs the purchase agreement/contract to buy the property from the seller.

Example Calculation

  • Acquisition Date: July 1, 2024
  • Start Counting: July 2, 2024
  • 90th Day: September 30th, 2024

In this example, the earliest date the property can be sold to an FHA borrower is September 30th. If the resale date is before September 30th, the transaction will not comply with the FHA Flip Rule.

Important Notes

  • Calendar Days: The 90 days are counted in calendar days, not business days.
  • Public Records: Always verify the acquisition date through public records to ensure accuracy. I have had situations where the date of purchase of the seller and the deed being recorded by the county was off by more than a week - due to the deed having to be recorded manually vs electronically.

How Does the FHA Flip Rule Affect Buyers and Sellers?

  • For Buyers: If you plan on using an FHA loan to purchase a home, it's important to check how long the seller has owned the property. If the property has been owned for less than 90 days, you must wait until the 90-day period has passed before you can proceed with the purchase.
  • For Sellers: If you are selling a property that you have owned for less than 90 days, be aware that buyers using FHA loans will not be able to purchase your property until the 90-day period has elapsed. Additionally, if you are selling a property within 91 to 180 days of acquisition at a significantly higher price, be prepared for the possibility of a second appraisal that you may have to pay for.

Conclusion

The FHA Flip Rule is an important regulation that helps protect buyers from inflated property values and ensures fair market practices. Whether you are a buyer or a seller, understanding this rule can help you navigate the real estate market more effectively.

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These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.

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