FHA Anti-Flipping Law on HUD Homes - Clarification

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FHA Anti-Flipping Law on HUD Homes - Clarification

Tyler Standish
Walworth, NY · Member since 2016 · 16 posts · 0 votes

Hi,

I am looking at a HUD property to flip. This would be my first fix and flip, so I am very new to everything. I was hoping to get some clarification on the anti-flipping rule. Does this only apply if the buyer is going to be financing with an FHA loan? And if so, is it typical that buyers of these homes are most likely going to be using FHA loans?

Thanks!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y

as it relates to what I do .. its a deed restriction that says you need to own it for a certain amount of time. .and or you can only sell or refi it for a small% above what you paid for it.. during this period of time.. which I believe is 90 days. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    as it relates to what I do .. its a deed restriction that says you need to own it for a certain amount of time. .and or you can only sell or refi it for a small% above what you paid for it.. during this period of time.. which I believe is 90 days. 

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  • Evan Bell
    Real Estate Agent · San Diego, CA · Member since 2015 · 293 posts · 109 votes
    10y
    I believe Jay Hinrichs is correct. The last house we flipped fell under this restriction and we had to hold it for no less than 90 days. I don't recall if the sale price could only be a small percentage above what we paid for it though. We paid $41k and ended up selling it for $99k.
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Evan Bell  after 90 days you can sell it for whatever you want.  its just during that 90 day period I don't believe you can sell it for more than 20% of what you paid for it.. or refi it.. I could be wrong though

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  • Account Closed
    Western Suburbs, IL · Member since 2016 · 58 posts · 16 votes
    10y
    As others have mentioned you usually have to hold it for 90 days. This should be in the addendum when you go to make an offer.
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  • Evan Bell
    Real Estate Agent · San Diego, CA · Member since 2015 · 293 posts · 109 votes
    10y
    Jay Hinrichs that does ring a bell now. I re-read your post and see the "and/or" there now.
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Evan Bell   no pun intended  :)  I think I have it correct.. we do buy quite a few of these each month.

    but its pretty hard these days to get all the way through a rehab in much less than 90 days so our average turn times are about 120 to 150  these days..

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    Just to clarify. HUD homes have no deed restrictions and can be resold immediately. FNMA has a deed restriction that prohibits the sale for more than 120% of the purchase price for 90 days

    No matter the source you purchase the property from, FHA requires the deed to be recorded for 90 days before a contract can be executed will a buyer. Other lenders may have similar restrictions so always verify with the buyer's lender prior to signing a contract

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Tyler Standish, only @Greg H. is correct...no resale restriction on HUD properties, that's Fannie properties with the 90 days resale deed restriction. Slight clarification on FHA buyers, it's technically 90 days from your "closing" til your FHA buyer can execute a contract, not necessarily the "recording" of your purchase.

    @Jay Hinrichs, you were "skimming" again:)

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  • Tyler Standish
    OP
    Walworth, NY · Member since 2016 · 16 posts · 0 votes
    10y

    Thanks for the replies everyone...I think I am still confused though (maybe even more :) If HUD has no deed restrictions, and I am using conventional financing, I should then be able to sell whenever and for whatever amount, is that correct? I know there is a good chance that it will take that long to renovate, but if it only takes 2 months, I don't want to sit on it for a month.

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  • Tyler Standish
    OP
    Walworth, NY · Member since 2016 · 16 posts · 0 votes
    10y

    @Wayne Brooks

    Thanks Wayne. To clarify, if the buyer (after I rehabbed) was NOT using FHA financing, would this eliminate the 90 day restriction? Also, if you sell the house for more than double what you paid, is a second appraisal required? I wasn't sure if that was part of the anti-flipping rule or something entirely separate related to HUD properties?

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    @Tyler 

    @Tyler Standish

    Yes you can sell whenever you wish no matter how you purchase. The FHA restriction only applies if your end buyer is obtaining FHA financing

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  • Tyler Standish
    OP
    Walworth, NY · Member since 2016 · 16 posts · 0 votes
    10y

    @Greg H.

    Thanks Greg! Due to the fact that this is a HUD home and in a lower income area (expecting to be able to sell home for about $80-90k after rehab), in your experience, are those buyers typically using FHA financing? I don't want to severely limit my pool of potential buyers. Just trying to think of everything when considering putting an offer in.

    Thanks!

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    The answer is more area specific but yes it is possible you will be overlooking a large pool of buyers by not wanting them to go FHA. In rural areas, USDA buyers can be more prevalent and depending on the lender they may have restrictions in place as many mirror FHA. I would suggest budgeting the extra time in that price range

    @Wayne 

    @Wayne Brooks I have experienced it both ways but have had a couple of lenders use the date receded I assume to prevent any back deeding

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  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    @Tyler Standish

    A lot of loan products have an anti-flipping or title seasoning requirements of the seller (you).

    This means that there will be an extra hurdle for your end buyer to cross if obtaining a loan within 90 days of your initial purchase.

    With FHA borrowers, you can market at any time and if you find a buyer, agree that a new contract will be executed on day 91. If your buyer has a good lender, all that's required at that point is an appraisal and underwriting so it's conceivable that you can close between 100-110 days to an FHA end buyer.

    Conventional loans may require a second appraisal to justify the collateral if the property is sold within the 90 day window.  With some lenders, this does not cost the borrower anything.  Also, conventional loans don't usually have the under contract within 90 day restriction.  So you can go under contract on day 60 e.g. and close on day 91.

    So, if you market the rehabbed property in less than three months, just make sure you disclose this to the buyers.

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  • Account Closed
    Investor · Mill Creek, WA · Member since 2016 · 37 posts · 28 votes
    10y
    I found out the hard way in Baltimore. You have to keep it for 90 days or you can sell it, with a very low markup from the sale price (like 25%). That was my first flip and I struggled with those terms. But if you plan on a 60 day Reno (most need that much work), the list time/contract time could eat up the last 30 days. They are great for fix and holds.
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  • Account Closed
    Investor · Mill Creek, WA · Member since 2016 · 37 posts · 28 votes
    10y
    I need to clarify my use of the term "first flip." This was my first purchase under my business. It was not my first flip eve.
    0Reply
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