FHA Flip Rules

The Federal Housing Administration (FHA), a Branch of the United States Department of Housing and Urban Development (HUD), is the largest government insurer of mortgages from the United States. On May 1, 2003, HUD published a rule aimed at preventing property flipping on homes financed with mortgages backed by the FHA. The goal of the rule was to remove the most predatory cases of property flipping.

What Is Property Flipping?

Property flipping is the practice of purchasing a property, usually at a cost much below market value, and soon thereafter reselling at a cost that’s significantly higher than the initial cost price. The home’s value is often grossly misrepresented as a result of cooperation and alliance of their original home investor, the lender and the appraiser. This practice is in nature; the FHA established the flip rule to avoid property buyers which use FHA funding from falling prey to it.

Switch Rule Details

For an FHA endorsed mortgage to be utilized, the owner of record must be the home seller. No assignment may be included in the transaction, and possession requires proof. Also, the property might not be sold prior to 90 days after the last purchase of the exact same property. In case the house is resold within 91 to 180 days, further documented proof of the value of that property is going to probably be needed if the property is being resold for over 100% of the previous sale price. The rule enables the FHA to need and examine supplemental proof of an appraised value of a house that’s resold within 12 months.

FHA Flip Rule Exceptions

Two types of property resales are exempt from the time constraints of the FHA flip rule. When a house is purchased by a relocation firm or an employer with the intention of relocating a worker, the 90-day rule does not apply. Properties resold by HUD with their Real Estate Owned (REO) initiative don’t have to adhere to the 90-day rule. In both situations, if the house is resold and FHA backed funding is going to be utilized, the FHA flip rule will subsequently apply.

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