This spring’s burst in home sales was fueled by Federal Housing Administration-insured loans.
But if you’re thinking of slipping a flip into the FHA lending stream, think again. Regulations adopted Feb. 10 put new conditions on resales involving FHA financing.
Historically, the FHA has refused to back financing of houses that hadn’t been owned for at least 90 days. Its goal was to prevent flipping – the rapid buying and reselling of houses that could result in the FHA backing the mortgage of a property with an inflated value.
Now, recognizing that it’s in the best interest of neighborhoods to get foreclosed and bank-owned houses sold and owner-occupied, the FHA will consider insuring the purchase loans for houses if:
- There is no pattern of previous flipping for the property, within the past 12 months and as documented in the appraisal
- The seller holds the title
- And the house was legitimately on the market as evidenced by a bona fide listing, including “for sale by owner.” (Yes, FSBO is specifically cited in the FHA regs.)
If you want to buy a house that changed hands less than 90 days ago, with an FHA-backed loan, you’ll also have to provide additional documentation about the renovations that ostensibly increased the value by 20% or more. Your lender can charge you for the cost of an inspection to verify all this.
The gritty details are at the FHA site.