HUD Restricts FHA Loans for ‘Flipping’
The trials and tribulations of “flipping” houses make amusing anecdotes for television viewers who watch home shows dedicated to this real estate trend. What many don’t realize, however, is that some buyers aren’t able to fund the purchase of these flipped homes.
PAR member Dan Bradley, a certified general appraiser, says the U. S. Department of Housing and Urban Development (HUD) has regulations regarding FHA financing and flipping.
“HUD has no power to limit flipping property in general,” Bradley explains. “However they can restrict who receives an FHA loan. HUD has published restrictions on the eligibility of “flipped” properties for FHA financing.
“HUD doesn’t distinguish legitimate flipping and those with questionable motives,” he adds. “Some flipping is legal, some is not. There are several ways people manipulate the situation with minimally qualified individuals, falsified information or inflated appraisals. Many times these types of deals allow individuals to borrow more money than the property is worth and they pocket the extra money.”
A buyer is not eligible for an FHA loan if he is purchasing the house from someone who has owned the house less than 90 days. HUD won’t insure the mortgage for these purchases.
“HUD initially introduced these restrictions in 2003,” Bradley explains. “The department has since then issued revisions which allow some exceptions to the 90-day flipping rule.”
The exceptions include: inherited property; property acquired by financial institutions and banks through foreclosure; HUD, Veterans Administration and Department of Agriculture properties; and approved non-profits and local and state government agencies.
The other requirement is that only owners of record may sell properties to HUD-financed purchasers. “There cannot be a double closing when selling the property,” Bradley explains. “HUD says if you’re selling the property, your name has to appear on the deed and you need to have proof that you own the property.”
Bradley says while HUD will finance homes that are sold 91-180 days after acquisition but if the sale price exceeds the previous sale price by 100 percent, the department will require two appraisals.