Property flipping anti-predatory lending rules restrict buyers from using certain mortgage programs to purchase properties that the seller has not owned long enough. The logic: rapid price increases on recently acquired properties raise concerns about inflated appraisals and fraudulent flips. An investor who buys a property and sells it quickly must understand which programs their buyer can use.
FHA Flipping Rule
- ✦FHA prohibits financing the purchase of a property the seller has owned for fewer than 90 days. The 90 days is measured from the seller's acquisition date to the date the buyer signs the FHA purchase contract.
- ✦Properties owned 91 to 180 days by the seller may still trigger FHA review if the buyer's purchase price is more than 100 percent of the seller's acquisition price. A second appraisal may be required.
- ✦FHA permanently waived the anti-flipping rule for HUD REO properties and certain REO owned by other government agencies. The waiver for COVID-era properties has been handled separately in various mortgagee letters.
Conventional Flipping Rule
- ✦Fannie Mae and Freddie Mac do not have an explicit anti-flipping rule based solely on seller ownership period. However, appraisers are required to flag rapid price appreciation and comment on it.
- ✦If the sale price is significantly above the seller's recent acquisition price, underwriters will look more carefully at the appraisal, particularly the comparable selection and any adjustments made for condition improvements.
- ✦Jumbo lenders may apply their own seasoning overlays. Check the individual lender's guidelines.
VA Flipping Rule
- ✦VA does not have a specific anti-flipping rule comparable to FHA. However, VA appraisers are trained to flag market value concerns and unusual price increases.
- ✦The VA appraisal is a Notice of Value, not an opinion of value. If the NOV comes in below contract price, the veteran cannot be required to pay the difference.
Non-QM Investor Buy Programs
- ✦DSCR and investor non-QM loans have no flipping seasoning requirement from the buyer's standpoint. The question is the DSCR on the property, not the seller's holding period.
- ✦For investors purchasing to rent out immediately, this means non-QM is often the most flexible path if the conventional appraisal is going to be scrutinized for rapid price appreciation.
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Aria can help you identify which programs work for a buyer purchasing a recently flipped property. Ask at vicariointel.com.
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