Understanding FHA Flipping Rules
What are FHA Flipping Rules? Have you ever watched those TV shows where people buy a house, fix it up real nice, and then sell it for a profit? That’s called “flipping.” The Federal Housing Administration (FHA) has some special rules about doing this. Why? Because they want to make sure houses are safe and good for people to live in, not just quick ways to make money.
Plus, they’re protecting against folks who try to game the system.The FHA flipping rules are there to stop certain kinds of fast house sales. But don’t worry, they understand sometimes flipping happens fast for good reasons, so there are rules and exceptions.
FHA 90-Day Flip Rule
So, what’s the big rule? The famous one is the 90-Day Rule. This means if someone buys a house and wants to sell it to you with an FHA loan, they need to own it for at least 90 days before you agree to buy it. No ifs, ands, or buts.
Why 90 Days? It helps prevent scams. Some people used to buy houses super cheap, make them look nice without really fixing big problems, and then sell them for a lot more money. This rule helps make sure the house is really okay and the deal is fair.
The Bottom Line for Now: If you’re buying a house with an FHA loan, and the seller hasn’t owned it for 90 days yet, you might have to wait a bit. But it’s for a good reason – to make sure your new home is as good as it seems.
FHA Flipping Rules for Sales Between 91 – 180 Days
Here’s the Scoop: Things get a bit more relaxed after the first 90 days, but there are still rules from day 91 to day 180. The FHA isn’t just going to look the other way; they have guidelines to ensure fairness and safety.
- Double-Check on Value: If you’re buying a house within this time frame and the selling price is over 100% higher than what the seller paid, the FHA wants to take a closer look. They might ask for a second home appraisal to make sure the house’s price isn’t inflated. It’s like a double-check to keep everyone honest.
- **Documentation: **The seller might need to provide info on the renovations they did to justify the price jump. If they’ve made significant improvements, then the price increase makes sense, right?
Why It Matters: These rules help protect you from paying too much for a house. It also stops those quick-flip profit seekers from taking advantage of the system.
FHA Flipping Rule Exceptions
Good News! There are always exceptions to the rule, right? The FHA knows that not all flips are sneaky deals. Some are genuine, good-hearted efforts to fix up neighborhoods and homes. So, here are a few times when the FHA might say, “Okay, we see you, and this is fine.”
- Inherited Properties: If you’re selling a house you got from a family member, the FHA understands this isn’t your typical flip.
- Government Agencies and Nonprofits: When government groups or certain nonprofits sell homes, those sales don’t fall under the typical flip rules.
- Relocations: If an employee is moved because of their job and they have to sell their house, this situation might get a pass.
- Bulk Sales: Sometimes, an investor will sell off many houses at once to another investor. This type of sale can be exempt from the rules.
The Key Takeaway: Not all flips are treated the same. If the sale falls under any of these categories, the FHA might be more lenient with its rules.
Alternatives to FHA for Flipping Properties
So, what if you’re flipping a house and bump into these FHA rules, but you or your buyer don’t want to wait? Don’t worry! There are other options outside the FHA that can work for flipping properties. Let’s explore a couple:
1. Conventional Loans:
- Faster, Sometimes: Unlike FHA loans, conventional loans might have more flexible rules about property flipping. However, the buyer needs to have a good credit score and usually a bigger down payment.
- Pros: Less strict on the selling timeline.
- Cons: Higher credit scores and down payments needed.
2. Hard Money Loans:
- For Investors: These are short-term loans often used by property investors because they’re quick to get. But, they come with high interest rates.
- Pros: Fast money, less fuss about property history.
- Cons: Higher costs, short payback period.
3. Cash Buyers:
- Simplest Option: Sometimes, finding a buyer who can pay cash is the easiest way to skip the headaches of loan rules.
- Pros: No loan means no loan rules. Easy and fast.
- Cons: Finding cash buyers isn’t always easy.
Remember: Each option has its upsides and downsides. It depends on what you and the buyer are okay with. Sometimes paying a bit more in interest for a quick deal is worth it. Other times, waiting out the FHA rules might be the smarter move.
The Bottom Line
Grasping the FHA flipping rules ensures that whether you’re buying, selling, or investing, you’re protected and informed. These rules, including the well-known 90-day flip rule, aim to uphold fairness and safety in the housing market. For those where the FHA timeline doesn’t align with their plans, alternative financing options like conventional loans, hard money loans, or cash purchases are viable paths that come with their own set of advantages and considerations. Armed with this knowledge, you’re ready to tackle your real estate projects more strategically and successfully.
FHA Flipping Rule FAQs
Why does FHA have a 90-day flip rule?
The 90-day flip rule by FHA is all about making sure that homes are safe and the deals are fair. It’s there to stop quick flips that only aim for profit without really caring about the quality of the house. This rule helps to catch any big problems with the house and also stops people from selling a house for way more than it’s worth super quickly.
What is the FHA flip rule example?
Imagine someone buys a house, fixes it up in just a month, and wants to sell it right away for a much higher price. If you want to buy this house with an FHA loan, the rule says you have to wait until 90 days have passed since the seller bought it. This wait helps make sure everything about the sale is okay and the house isn’t just a quick, shiny fix to make money.
What is the conventional flip rule for 2023?
As of 2023, conventional loans (those not backed by the government like FHA loans are) don’t have a strict 90-day flip rule. However, lenders might have their own rules or checks to make sure a house’s price makes sense and it’s in good condition. They might still look closely at houses sold shortly after being bought to make sure everything’s fair and square.
Is there a 90-day flip rule for conventional loans?
Nope, conventional loans don’t have a specific 90-day flip rule like FHA loans do. But, just because there’s no specific rule doesn’t mean lenders won’t take a close look at a property that’s being flipped quickly. They still want to make sure their investment is sound, so they might ask for extra inspections or appraisals on houses that have been sold recently.
