The Basics of the FHA 90-Day Flip Rule
The Federal Housing Administration (FHA) is a U.S. government entity that provides mortgage insurance to lenders to encourage them to offer loans to homebuyers who might not qualify for typical mortgages. The FHA 90-Day Flip Rule is a regulation the FHA implemented to reduce fraudulent property flipping. Property flipping refers to the practice of buying a property, making minimal improvements, and then reselling the property for a profit. The FHA 90-Day Flip Rule is simple: if the time period between the contract for sale of a home and possession of the home is not more than 90 days, most FHA lenders will deny mortgage approval. In other words, if you are an FHA homeowner, you must wait for at least 91 days before you can sign the dotted line to purchase the property you are buying. The rule also limits how much the seller can increase the price of the property. If the seller increases the price of the property by more than 20% of the original cost, the lender must justify the increase in price.Impacts of the FHA Flip Rule on Homebuyers and Sellers
The FHA Flip Rule impacts both homebuyers and sellers in different ways. Homebuyers seeking to purchase a property that was recently flipped may find it difficult to obtain an FHA-insured mortgage. This is because lenders are wary of fraudulent property flipping – which the FHA Flip Rule aims to combat. By ensuring that properties have not undergone a quick turnaround and minimal renovation, lenders can be confident that the property is a safe investment. On the other hand, sellers who are keen on flipping properties in this manner may struggle to find potential buyers who are willing or able to buy their property at a higher price without the aid of an FHA-insured mortgage.How to Determine If the FHA Flip Rule Applies to You
If you are a homebuyer or seller, it is essential to determine if the FHA Flip Rule applies in your situation. The easiest way to do this is by communicating with your lender. They will provide information on the rules and regulations that apply to your mortgage application. If the FHA Flip Rule applies, sellers need to be aware that they must wait 90 days before entering into a contract to sell their property, with the new buyer then having to wait an additional 90 days before they can secure financing through an FHA loan. Buyers should be prepared to wait the extra time period or explore other financing options.Tips for Navigating the FHA 90-Day Wait Period
Obtaining an FHA loan during the 90-day wait period is decidedly complicated. Therefore, buyers should be prepared to explore alternatives. Some tips for navigating the wait period include:- Be patient and wait out the 90-day period
- Explore conventional ways of financing
- Look into government-backed loans provided by other agencies apart from FHA, like Fannie Mae and Freddie Mac
Alternatives for Financing Properties Affected by the FHA Flip Rule
If you are an investor looking to flip a property, you can try an alternative way to fund the project. Alternative financing options include:- Hard money loans – These loans come from private investors who are more flexible and provide short term loans. They usually have higher interest rates, points, and fees.
- HELOC (Home Equity Line of Credit) – This alternative is only possible if the buyer already owns property with significant equity. HELOC loans are revolving credit, which allows you to borrow against the equity multiple times.
- Cash – All-cash offers may be expected in hot markets, and if you can raise the capital, this is the best route to go.
Exceptions and Exemptions to the FHA 90-Day Flip Rule
Certain situations do not apply to the FHA Flip Rule. These situations include:- Properties purchased by HUD (Housing and Urban Development) or as part of their Real Estate-Owned (REO) program
- The seller is a US government agency, a federally insured financial institution, or a Federal Deposit Insurance Corporation (FDIC)-controlled entity
- Inherits properties
- At least 180 days have lapsed since the previous change in ownership