The FHA and USDA Anti-Flip Rule

Buying & Selling Real Estate
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The FHA and USDA Anti-Flip Rule

Michael Ablan
Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes

Hey guys!

I just wanted to write a quick post about the FHA/USDA flip rule. Somehow I had never heard of this before and kind of stumbled on the info while talking to my lender how some of the flips I'm doing (thank god I did too).

  • The flip rule prevents flippers from selling their projects for a profit for the first 90 days, beginning from the day the deed is recorded.  
  • After the 90 days are up, the flipper can now sell to an FHA/USDA buyer, but if the flipper sells it for DOUBLE of what they paid, then the flipper will have to pay for a 2nd appraisal to go along with the first appraisal that the buyer typically pays for.  
  • If the sale price is less than double, then this condition isn't required.  
  • Once the original purchase date reaches a 180 maturity, then none of this matters and the flipper can go ahead and make the sale as normal.

This was important to me because I was in the process of setting up a flip/sale in a 45 day window. I wasn't aware that I'd be obligated to hold it for 90 days if my buyer was using FHA (that's what almost everyone uses in my area). Now that I know this, my strategy moving forward has adjusted drastically.

From what I understand this rule is enforced on conventional loans depending on the bank and LTV. I was also told that this does NOT affect VA loans. Can anyone else confirm this?

Hopefully this info will be useful to someone else.

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Sergey Sidelnikov
Real Estate Investor · San Rafael, CA · Member since 2016 · 26 posts · 12 votes
8y

Mike, my partner and I flipped properties to FHA buyers. Your statements about 90 days, double appraisal if the selling price is double or more than purchase price and 180 from the day of closing are correct. You can find this with any lender who works with FHA.

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  • Sergey Sidelnikov
    Real Estate Investor · San Rafael, CA · Member since 2016 · 26 posts · 12 votes
    8y

    Mike, my partner and I flipped properties to FHA buyers. Your statements about 90 days, double appraisal if the selling price is double or more than purchase price and 180 from the day of closing are correct. You can find this with any lender who works with FHA.

    1Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    7y

    I’ve encountered this issue on numerous occasions.  It’s never stopped a transaction but it’s a definite headache and head-scratcher not knowing when these arbitrary guidelines apply.  Thanks so much for posting!!

    0Reply
  • Christi HawkinsPro Member
    Columbus, OH · Member since 2017 · 239 posts · 142 votes
    7y

    @Michael Ablan great post! Here is the information for a VA loan

    The VA allows for a property to be flipped by an investor/owner within 90 days of being on title. But once again, the VA allows the lender to add additional layers onto requirements. ... -If seller has not been on title for <90 days, and they are making a gross profit of >20%, then some lenders will not do the loan.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @Ed L. There’s nothing arbitrary about them.....they’ve been in place for years, are common knowledge in the industry and are pretty straight forward.

    0Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    7y

    @Wayne Brooks I wasn’t trying to get into a philosophical debate about government policies.  My point was to thank Michael for clearly detailing out the rules.  

    I’ve been a real estate agent and investor for over a decade and have only had this come up on a handful of occasions and prior till today no one has detailed out the rules to me  personally.

    These rules concern a fairly narrow set of circumstances that many investors will not encounter until it’s causing a problem, so no I don’t consider it common knowledge outside of lending circles.

    Not being able to sell a home for a profit for 90 days is from my perspective a fairly arbitrary guideline.  I understand the underlying rationale but why not 60 days?  A year?  3 years?   By definition it’s an arbitrary amount of time.  

    An arbitrary amount of time that can add thousands of dollars in unnecessary holding cost and slow the flow of capital.  

    It’s not something I’m terribly concerned about as an investor but I’m sure appreciative for the OP taking the time to post what some consider to be common knowledge!  

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @Ed L. Okay, I see.  Yes, the 90 day period may be an arbitrary number, I thought you meant the restrictions were arbitrarily applied.

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y
    Originally posted by @Michael Ablan:

    Hey guys!

    I just wanted to write a quick post about the FHA/USDA flip rule. Somehow I had never heard of this before and kind of stumbled on the info while talking to my lender how some of the flips I'm doing (thank god I did too).

    • The flip rule prevents flippers from selling their projects for a profit for the first 90 days, beginning from the day the deed is recorded.  
    • After the 90 days are up, the flipper can now sell to an FHA/USDA buyer, but if the flipper sells it for DOUBLE of what they paid, then the flipper will have to pay for a 2nd appraisal to go along with the first appraisal that the buyer typically pays for.  
    • If the sale price is less than double, then this condition isn't required.  
    • Once the original purchase date reaches a 180 maturity, then none of this matters and the flipper can go ahead and make the sale as normal.

    This was important to me because I was in the process of setting up a flip/sale in a 45 day window. I wasn't aware that I'd be obligated to hold it for 90 days if my buyer was using FHA (that's what almost everyone uses in my area). Now that I know this, my strategy moving forward has adjusted drastically.

    From what I understand this rule is enforced on conventional loans depending on the bank and LTV. I was also told that this does NOT affect VA loans. Can anyone else confirm this?

    Hopefully this info will be useful to someone else.

    I have absolutely no problem waiting 90 days and deducting $100 to keep away from being double of what I paid.  I'll treat for lunch too!!

    1Reply
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