90 Day Flip Rule >> What is it and How Does it Affect You?
You probably don’t think about when a seller bought the home when you’re the buyer.
If you have FHA financing, though, it makes a big difference because of the FHA 90-Day Flip Rule.
The difference is so big that it could leave you without financing if you aren’t careful.
Here’s what you need to know before you attempt to buy a flipped home.
What is the 90-Day Flip Rule?
The 90-Day Flip Rule is easy. If the current seller owned the home 90 days or less, the loan won’t get approved.
FHA doesn’t allow buyers to buy flipped’ homes which they define as anyone buying and subsequently selling a home in less than 90 days.
More info on this directly from HUD > here
The 90 days starts the date the seller bought the home (the date the deed was recorded).
The seller cannot sell to an FHA buyer within the next 90 days. This means the buyer cannot sign a contract with the seller until the 91st day that the seller owns the home.
After the 91st day, you can sign a contract and start the loan process.
FHA Flip Rules for Homes Owned Between 91 – 181 Days
The 90-Day Flip Rule doesn’t end at 90 days, though.
It affects homes owned up to 181 days, but once it hits 90 days, the rules change a bit.
FHA allows buyers to purchase a home that’s owned for 91+ days, but if it hasn’t been 181 days yet, they may require a second appraisal if the seller is asking for a significant amount more than what he paid for the home.
If the second appraiser agrees with the first appraiser’s value, then the loan can go on as usual.
The underwriter may even require the seller to provide a copy of all the receipts showing what upgrades have been made to the home.
If you need a second appraisal, it must:
- Have a different appraiser – appraise the home
- Provide evidence of the properties value
- A 12-month chain of title must accompany it to make sure there wasn’t flipping before the current owner
If your lender requires a second appraisal, the fee for that would be paid by the lender.
As a buyer, you are only responsible for the payment on the first appraisal.
More appraisal info: Appraisal vs Inspection
Are There Exceptions to the FHA Flip Rule?
Like most rules, there are a few exceptions to the FHA Flip Rule:
- If you’re buying the property as a relocated employee and your employer is paying for the move
- HUD property resales
- Properties the seller inherited
- Government sales
- Sales of properties in presidentially declared major disaster areas
Can you use FHA Financing for a Flipped Home?
You can use FHA financing for a flipped home as long as it meets the FHA requirements above.
It may take a little more work to get it through if the seller recently flipped it (more than 90 days ago) but if everyone does their part and the seller isn’t inflating the price, the sale should go on like any other sale.
Read on: Step by Step guide to FHA loans
What’s an alternative loan program?
The closest alternative would be a Conventional loan with a 3% down payment. A conventional loan won’t have a flipping rule and the down payment is actually less than an FHA loan.
More conventional info: Differences between a Conventional and FHA loan
If you’re looking to buy a flipped home with FHA financing, make sure you work with a reputable FHA lender that understands the 90-Day Flip Rule and will ensure the sale completes within the FHA rules.