What Is The 90-Day Flip Rule?
Homes nowadays can range in age from just a few years old to over 100 years. More often than not, homes show their age from a lack of updating, care, maintenance, you name it. Luckily, we have people with strong entrepreneurial spirits that buy these outdated, sometimes dilapidated homes, fix them up, and then sell them. You would think that purchasing a home that has been recently flipped would be as easy as buying any other home, that is not the case for those that are using the FHA loan program to buy a home.
Timing
If a home is purchased, fixed, and then resold in less than 91 days, FHA loan guidelines state that this purchase cannot proceed and funding will not be provided. This doesn’t mean that you can start a contract on the 80th day since you know that the 30 day escrow period will bring you beyond the 91st day. This means that the contract itself cannot be written within the 91 days being mandated. There are a few exceptions to the timing rule, if you’d like to learn what those are we can send email you a PDF that states what those exceptions are and more.
Is It Necessary?
The 90 day rule is put into place for the protection of the buyer as well as the overall market in the particular area where the flip is taking place. Basically the Government wants to make sure that you are not paying more for a home that was just acquired by the seller for a much cheaper price. This not only protects your investment, but allows the Government to feel more secure in insuring the loan that you are about to take out. To further support their position, if the home in questions is being sold after the 91st day and for more than 100% of the seller’s acquisition price, the lender will require a second appraisal report to be conducted and not paid for by the buyer. This helps to ensure that the price of the home after the renovations is warranted and that you aren’t paying more for your new home. It also has the added benefit of keeping market value in the area in check and not running away to cause a housing crash.
Game Plan
If you’ve been thinking about buying a home and have set your sights on a home that has been recently rehabbed, be sure to talk to you lender or real estate agent to make sure you are over the 90 days required by the Government. You don’t want to be weeks into your new escrow only to find out that you can’t get the loan for it.
At American Freedom Funding, FHA loans are one of our main areas of expertise and the date of acquisition by the seller is the first thing we look at when our clients turn in an accepted offer for a recently flipped home. It’s a minor item to look out for but it can cause a world of headaches if it is missed.
Be sure to ask us any and all your mortgage and real estate related questions. Our team is happy to help make the buying, refinancing, and investing process simple, better, faster.