HUD has published the final version of its predatory lending rule established to combat “flipping.” Flipping is the term used to describe the resale of a recently acquired property for an artificially inflated value. Under the new rule, recently flipped properties are not eligible for FHA mortgage insurance.
Some of the other features of the rule include:
- Only the owner of record may sell a home to an individual who will get an FHA mortgage. It cannot involve the sale or assignment of a sales contract.
- Resales occurring 90 days or fewer after the purchase of the property are not eligible for FHA insurance.
- Resales occurring between 91 and 180 days after purchase will be eligible only if the lender obtains an additional independent appraisal based on a resale profit percentage threshold established by the FHA. Lenders may prove that the increased value of the property is due to rehabilitation.
In areas where flipping is a problem, HUD may require that lenders provide additional documentation to sup-port the value of the property. This would supersede the 91–180 day rule shown above.
Make sure you are working with an agent who is aware of these rules if you are seeking an FHA loan..you could end up in default if you find out too late in a transaction to purchase a home that meets this criteria. Also verify any additional risk layering that your specific lender may use to protect themselves that adds additional requirements to the above noted.
Hope this helps!
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