FHA Rules on Flipping
Flipping means purchasing a home with the intention of fixing it up and selling it for a higher price. This is usually done very quickly. Repairs are not necessarily done well, and the home often is sold higher than the actual value is worth. The Federal Housing Administration has different laws to help to protect itself and the homeowner from the purchase of a cheap home at a higher rate. These are known as the FHA's Anti-Flipping laws.
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90-Day Rule
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The 90-day rule states that the FHA will not issue a mortgage or insurance to a home where the previous owner hasn't owned the home for more than 90 days. This is to protect the FHA from issuing insurance on a mortgage that the homeowner cannot afford to pay. If the home is owned for fewer than 90 days, the home might have had small cosmetic repairs done, but may not be worth the asking price. This rule was suspended February 1, 2010, but may be reinstated. A markup in value of 20 percent is the maximum allowed by the FHA. While it is possible to purchase a home without the aide of the FHA, most mortgage companies do use FHA mortgages.
Home Values
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A home that is being flipped must provide home-value documentation through third-party representatives such as a home appraiser and home inspector. The documentation indicates that the home has had stated repairs, not just cosmetic coverings, and that the home is actually worth the asking price. This is true for those homes where the markup is 20 percent higher than the purchase price.
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Sales
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Only the documented homeowners are allowed sell a home that will be financed with FHA-insured loans. This helps prevent the rapid turnover of homes. Owners must obtain documentation of home ownership, which might include a deed, school tax records or property tax records, through the local government.
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References
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