Historically, it involves buying a property, making improvements and then selling it for a profit in a short period of time. In recent years, the process of flipping real estate has increased in popularity due to the rise of do-it-yourself (DIY) home improvement projects and access to information and guidance.
Given the current state of the real estate market, home flipping has the potential to be even more popular and profitable. However, there are important rules regarding how and when Federal Housing Administration (FHA) mortgage loans can be used in home flipping. These rules are designed to protect the borrower and the FHA to ensure that flipping properties adheres to high standards of safety and integrity.
The basic guidelines for using an FHA loan in a home flipping transaction are as follows:
• The property must have been owned by the seller for at least 90 days prior to the sale.
• The resale price of the home must be at least 90% higher than the purchase price. This is to ensure that the seller isn’t taking advantage of the FHA loan in order to sell the property quickly and at a vast profit.
• The mortgage must be for the purchase of your primary residence. This means that investors cannot use FHA loans to finance the purchase of investment properties.
• The seller must agree to a three-day waiting period between the signing of the sales contract and the closing of the loan. This gives borrowers time to review the details of the loan and make sure they understand and agree to the terms.
• The borrower must occupy the property as their primary residence for at least one year after the loan closes in order to avoid any penalties or fees.
The FHA rules help to protect borrowers from being taken advantage of and make sure that home flipping transactions are safe and beneficial to buyers and sellers alike. By ensuring that the process is fair and that the property meets certain safety requirements, the FHA safeguards the interests of both parties and helps to prevent fraud or deception.
Home flipping is a potentially profitable venture but it is important to be aware of the FHA rules and regulations surrounding the process. Having an understanding of the FHA loan requirements and the guidelines for purchasing a property that has been flipped can help to ensure that the process is beneficial and successful for all involved.
Home flipping is a popular and profitable activity in the real estate market, and the Federal Housing Administration (FHA) has rules in place to protect buyers and sellers during these transactions. When using an FHA loan to purchase a flipped home, any seller must have owned it for at least 90 days, the resale price must be at least 90% higher than the purchase price, the loan must be for a primary residence, a three-day waiting period is required before closing, and the buyer must occupy the home as their primary residence for at least one year. These rules are in place to protect the interests of the buyer and the FHA, and to ensure that all transactions adheres to high standards of safety and integrity. By being aware of the FHA loan requirements and guidelines, buyers and sellers can ensure that all transactions are successful and beneficial.
This article was contributed on Jul 05, 2023
