FHA Resale Restrictions
The Federal Housing Administration gives low-income and moderate-income borrowers the opportunity to own a home with a low down payment. With only 3.5 percent down, FHA-insured financing helps the buyer and lender, especially during difficult economic times. The government-backed insurance programs reimburse the lender if the homeowner defaults, and buyers can obtain loans despite credit challenges. In exchange for the flexibility in acquisition costs and underwriting, FHA sets resale restrictions on properties that secure FHA-insured mortgages.
Other People Are Reading
-
Basics
-
In an effort to deter investor profit through the use of FHA-insured financing, the agency implemented an anti-flipping rule. Flipping refers to the quick resale of a home -- within 90 days of seller acquisition -- which yields a substantial return for the investor. Because a correlation exists between flipped homes, homeowner default and mortgage fraud, the practice has traditionally been viewed as negative by FHA, and therefore, prohibited.
History
-
The Department of Housing and Urban Development's Code states that a property owned by the seller less than 90 days is ineligible for FHA-insured financing. In early 2010, FHA waived the anti-flipping restriction through the remainder of the year, and later extended the waiver through Dec. 31, 2011. According to a HUD press release, the policy change had proven effective, allowing the quick resale of $3.6 billion worth of property in 2010. The property resold under the relaxed guidelines included HUD-owned, bank-owned and private-seller-owned real estate.
-
Time
-
The time restrictions period on resales refers to the number of days that have elapsed between the settlement date (the date on which the seller acquired the property) and the date of execution of the sales contract -- the date the seller accepted the offer by signing the contract.
To ensure adherence to these timeframes, the FHA-approved lender must submit a copy of the sales contract, as well as a sales history report, such as title documents, tax bill or recorded deed, to HUD for approval.
Considerations
-
FHA's anti-flipping restrictions do not apply to certain property. Exceptions include HUD-owned real estate; homes in revitalization areas; property owned by government agencies and certain non-profit organizations; property acquired through inheritance; real estate purchased by an employer or relocation agency for the purpose of relocating employees; and homes located in areas designated as federal disaster areas, according to HUD Code.
Property resold more than 12 months after seller acquisition is eligible for FHA-insured financing without resale restrictions.
-
References
- Photo Credit Home for Sale sign image by tarheel1776 from Fotolia.com
