Getting An FHA Loan On A Property That’s Been Flipped?

July 29th, 2010

Many people do not realize when they are buying a property that has been “flipped”. What does “flipped” mean? To me it means that a real estate investor bought a house that was run down, and did some renovations, and sold it quickly, without holding it for the long term. Why this matters is that when getting an FHA loan, FHA says you need a 2nd appraisal when buying a flipped property.

I asked a bank representative that I broker loans to, to help me define what FHA sees as a “flipped property”, and here was his reply:

“Here are the requirements regarding property resales direct from our FHA product guidelines:

Property Flipping: Property flipping is a practice whereby a property recently acquired is re-sold for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser. To address the issue of property flipping, FHA has placed certain time restrictions and additional documentation requirements on purchase transactions involving the resale of an existing property.

Property Eligibility: Property eligibility is dependent upon the time that has elapsed between the date the seller acquired the property (based on the settlement date) and the date the buyer signed the sales contract or purchase offer (the resale date).

Resale Less Than 90 Days: This property is not eligible for an FHA loan if the resale date is 90 days or less following acquisition by the Seller. The contract may be written on the 91st day from the date the current owner acquired the property).

Resale Greater Than 90 Days: 91-180 days: 2 appraisals will be required if the sales price is 100% or greater of the seller’s acquisition cost. And the cost of the second appraisal may not be charged to the homebuyer.

181-360 days: 2 appraisals may be required at underwriter discretion.”

So you can see that FHA and banks use “flipping” with a negative connotation, and believe that fraud is usually associated with quickly selling properties after purchase and renovations, hence the 2nd appraisal.

At this point a 2nd appraisal and the above time requirements are not a requirement on Conventional or VA loans for “flipped” properties.

If a property is in good condition, you like it, and you believe it is worth what similar properties in the area are, then feel comfortable making an offer and do not worry about fraud. But do realize why FHA wants a 2nd appraisal to double check value.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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