The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), guarantees a mortgage loan for qualifying applicants via FHA-approved mortgage lending companies. The main goal of FHA loans is to assist home buyers who would not necessarily meet the criteria for a conventional loan still become homeowners.
According to the FHA, the government agency “insured more than one million mortgages for single family homes, and nearly 83 percent of those FHA purchase mortgages served first-time homebuyers” in fiscal year 2018. There are also various types of FHA loans and programs. The agency insured more than 48,000 Home Equity Conversion Mortgages, or so-called "reverse mortgages," that same year, for example.
When it comes to utilizing such loans to purchase homes to flip, there several FHA flipping rules buyers need to be aware of. Some pertain to title transfers, resale timelines and documentation.
HUD’s FHA Single Family Housing Policy Handbook breaks down various aspects of FHA loans, including the flipping rules.
The department's official definition for “Property Flipping” is “the purchase and subsequent resale of a Property in a short period of time”—meaning, someone buys property with the intent to sell it to someone else for a higher price. Typically, these homes are in need of upgrades and repairs. Such improvements increase the value of the home, and thus, often enable the seller to make a profit.
The FHA flipping rule governing title transfers and associated timelines reads as follows:
“The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has acquired title [or became the legal owner] to the Property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.”
“A Property that is being resold 90 Days or fewer following the seller’s date of acquisition is not eligible for an FHA-insured Mortgage,” it continues.
For resales that take place more than 90 days after the acquisition, but less than 180: “A Mortgagee must obtain a second appraisal by another Appraiser if: the resale date of a Property is between 91 and 180 Days following the acquisition of the Property by the seller; and the resale price is 100 percent or more over the price paid by the seller to acquire the Property.”
However, there are some exceptions, including but not limited to, properties that were inherited by the seller and those sold by government agencies (state and local).
Certain documentation is required when utilizing an FHA loan to flip a property, as well. Besides the typical information needed to obtain the actual loan, such as bank statements, documentation is needed regarding the resale, specifically showing the owner correctly met timeline restrictions via “a 12 month chain of title.”
Contour Mortgage is an FHA-approved mortgage lender that helps borrowers across the United States become homeowners. Contact us today to learn more.