FHA Property Flipping Requirements

With certain exceptions, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. This restriction was imposed in 2003 to prevent property flipping (reselling for profit with an artificially inflated value). On January 15, 2010, HUD announced a temporary (1 year) waiver of the prohibition with strict conditions to ensure against predatory practices.
Effective April 1, 2010, will allow the 90-day waiver for all properties acquired directly from a lender, but prohibits FHA financing for properties owned less than 90 days if the sales price is greater than or equal to a 20% increase over the seller's acquisition cost. The 90 days is calculated from the seller's acquisition date to the purchase contract date of the new transaction.
If the resale occurs within 0 to 90 days, the following requirements must be met:
1. All transactions must be arms-length; no identity of interest between buyer, property seller or third parties. Specific ways to ensure an arms-length transaction include:
Property seller currently holds title to the property. LLCs, corporations or trusts serving as property sellers must meet all applicable state and federal law.
No pattern or previous flipping activity exists on the property (as evidenced by multiple title transfers within 12 months.
The property was marketed openly and fairly (Any sales contracts with "assignment of contract of sale" may be a red flag).
2. Transactions with sales price greater than or equal to a 20% increase over seller's acquisition cost are not allowed.

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