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.
The FHA flipping rule states that any FHA-insured mortgage cannot be used to purchase a home that has been flipped within 90 days of the sale. In other words, a seller must own the property for at least 90 days before it can be sold to an FHA borrower.
The only rule is that the borrower must prove they were fully employed for six months before the FHA case number was first assigned. If you have a gap in employment, you may be required to show proof of full employment for two years prior to this gap.
Part 2 - The 91-180 day flip rule
It states that if there sale date of the property falls between 91-180 days following the seller's acquisition of the property, AND if the property is being sold for 100% or more over the price paid by the seller to acquire it, then a second appraisal of the home is required.
Selling House with an FHA loan
(3 percent if your credit score is 580 or more). This makes it much easier to qualify for an FHA loan. If an FHA borrower is selling their home to another FHA borrower, they must wait 90 days after acquisition to sell the property.
This required appraisal cannot be charged to the borrower. How long before you can sell your home purchased with an FHA mortgage? The answer is really, whenever you have the need. But depending on circumstances you may find your ability to sell is more limited in the first 90 days of ownership.
You have signed all the papers necessary and have reached an agreement. Your lender is bound by law to stick to your contract. After closing, your lender cannot go back on the arrangement they have made with you. Your loan can be denied anytime from the point of application to the point of closing.
There are, however, some exceptions to the FHA 90-day flip rule and they are as follows: A builder who has built a new house, or who is selling to a borrower with FHA-insured financing. If the seller inherited the property. If the property is a resale by the HUD or its REO (real estate owned) program.
Market research portion of an FHA appraisal
In the market research, an appraiser determines the stability of home prices in the area. They must cite several things including: Two comparable sales closed within 90 days of the appraisal. Three recently closed sales within the property subdivision.
The 90-Day Flip Rule
If the 90-day rule applies to the property, the lender is likely to reject the loan. This rule protects borrowers and lenders from investing in worn-out properties. Hence, as a buyer, you should wait for 90 days before you can buy a flipped home.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
When applying for an FHA loan, you'll also need to show that you have the usual debt-to-income ratios. If you plan to rent out the extra unit, you'll be able to use that rental income in order to qualify, but only up to 75% of it.
The Mortgagee must obtain complete individual federal income tax returns for the most recent two years, including all schedules.
FHA loan limits increase most years, and 2023 was no different. For this year, the FH floor — the cap in most housing markets — increased from $420,680 to $472,030, a 12% increase. The ceiling limit in high-cost markets also increased considerably, jumping from $970,800 in 2022 to $1,089,300.
FHA loans require a minimum down payment of 3.5% for borrowers with a credit score of 580 or more. Borrowers with a credit score of 500 to 579 need to put 10% down to get an FHA loan. Conventional conforming mortgages only require 3% down, and VA and USDA loans require no down payment.
FHA mortgage insurance for HUD-approved lenders. Eligible Activities: The property must contain at least 5 residential units with complete kitchens and baths and have been completed or substantially rehabilitated for at least 3 years prior to the date of the application for mortgage insurance.
Whether you're interested in a listing or touring an open house, here's a list of things buyers can look for that may be considered red flags to an FHA appraiser: Missing handrails. Cracked windows. Termite damage.
The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.
FHA loans have the same 10-payment rule. However, you can't pay down the balance to the 10-payment mark. Additionally, the payment has to be five percent or less of qualifying income. For example, the credit report shows a student loan payment of $400 and a balance of $2,400 (six payments).
The Bottom Line: Sellers Can Refuse FHA Loan Offers
Until then, striving for conventional loan approval may be a more straightforward option, if it's financially possible for you. Ready to take the next step toward homeownership?
HUD 4000.1 addresses this problem directly on page 145: “The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has acquired title to the Property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.”
While there's no limit to how many FHA mortgages you can get during your lifetime, you can generally only have one FHA loan at a time because you can only have one primary residence. This restriction helps keep the loan program – and its lenient requirements – from being used to purchase investment properties.
However, FHA loans do come with some disadvantages. Aside from the higher cost of the loan, it could take longer to close on your loan too. And if there are any issues that pop up during the appraisal and inspection, it could delay or even derail your purchase.
If you're looking to remove a borrower from your loan, an FHA Streamline refinance can be a great way to do it. With no appraisal, income documentation, or credit report required, this option saves you time and money compared to a traditional refinance.
Although there are no direct penalties for paying off FHA loans early, there are indirect costs. Prepaying FHA loans causes borrowers to lose liquidity.