Turning an older home into a beautifully remodeled and modern version then reselling it has become increasingly popular in real estate. Shiny new properties are enticing for many home buyers. But, if you’re interested in buying one of these renovated properties with an FHA loan, it’s wise to become familiar with the FHA flipping rule so there are no surprises during the property transaction.
Here is what you need to know about the FHA flipping rule and how it can impact FHA financing approval.
If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.
Sellers who plan on flipping a house generally buy a distressed property, give them some TLC, and then sell them for a profit. When sellers look for a property to flip, they usually explore foreclosures, tax sales, and property auctions to find a good deal. Savvy home flippers know how to allocate their investment toward renovations and repairs that yield the most profitability. Property flipping can be a very profitable endeavor if investors know what they are doing.
FHA loans are government-backed mortgages with less-strict financial requirements for approval than conventional loans. So, if you have a large amount of debt or a less-than-ideal credit score, you may still qualify for home financing with an FHA loan.
The FHA and HUD define flipping as “the purchase and subsequent resale of a property in a short time.” In some cases, if a seller rehabs or renovates a property to increase the value, it may fall under the FHA flipping rule. FHA lenders determine the 90-day timeline for the mortgage by looking at the date the deed was recorded. Then they determine the resale date by the date the buyer and seller sign the new sale contracts for the home.
Usually, FHA flipping rules are broken down into two categories: Less than 90-day ownership and 91 – 180-day ownership.