FHA 90-Day Flip rule Introduction
The Federal Housing Administration (FHA) plays a significant role in facilitating homeownership for a wide range of individuals, particularly those with lower credit scores or limited financial resources. To protect buyers and ensure the stability of the housing market, the FHA has implemented various rules and regulations. One such regulation is the FHA 90-Day Flip Rule, which aims to prevent fraudulent property flipping practices.
What is the FHA 90-Day Flip Rule?
The FHA 90-Day Flip Rule was introduced to address concerns related to the quick resale of properties for a profit. Property flipping involves buying a property, making minimal improvements, and then reselling it at a higher price within a short period. While legitimate property flipping can contribute to neighborhood revitalization, there were instances of unscrupulous practices that adversely affected buyers and the housing market as a whole.
The rule essentially restricts the eligibility of a property for FHA financing if it has been sold within the last 90 days. This means that if a seller acquires a property and intends to sell it to a buyer using an FHA-insured mortgage, they must wait a minimum of 90 days from the date of acquisition before entering into a sales contract with the FHA buyer.
Key Features of the FHA 90-Day Flip Rule
1. **Ownership Period:** The clock starts ticking on the 90-day period the day the seller acquires the property. Any sale within this period may be subject to additional scrutiny and may not qualify for FHA financing.
2. **Exemptions:** Certain property transactions are exempt from the FHA 90-Day Flip Rule. Transactions involving government agencies, public housing agencies, and nonprofit organizations are exempt. Additionally, properties acquired through inheritance or as a result of a divorce are exempt from the rule.
3. **Re-Selling at a Higher Price:** The FHA is particularly concerned about properties being acquired and quickly resold at significantly higher prices without substantial improvements. To address this, the FHA requires additional documentation and justification if the resale price is 20% or more above the seller’s acquisition cost.
4. **Waivers:** In some cases, sellers may apply for a waiver of the 90-day waiting period. However, waivers are granted under specific circumstances, such as documented evidence of repairs or renovations that enhance the property’s value.
Benefits and Criticisms
– **Consumer Protection:** The FHA 90-Day Flip Rule protects buyers from potentially predatory practices associated with rapid property flipping.
– **Property Standards:** The rule encourages sellers to make necessary improvements to properties before selling them, ensuring that buyers invest in homes that meet certain standards.
– **Market Efficiency:** Critics argue that the rule can impede market efficiency by limiting the quick turnaround of property transactions, which could otherwise contribute to neighborhood revitalization.
– **Documentation Challenges:** Compliance with the rule may pose administrative challenges for sellers, particularly when seeking waivers or justifying higher resale prices.
FHA 90 Day Flip rule Conclusion
The FHA 90-Day Flip Rule is a regulatory measure aimed at striking a balance between facilitating homeownership and preventing fraudulent property flipping practices. While it adds a layer of complexity to certain transactions, its primary objective is to protect buyers and maintain the stability of the housing market. Sellers and investors involved in property transactions should be aware of this rule to ensure compliance and a smooth process for all parties involved.