HUD Guidelines to Flip Properties
If the re-sale date (date of the fully executed sales contract that will result in a FHA loan) is 91 days to 180 days following the date the seller acquired the property, a copy of the title binder from the purchase transaction is required and documentation showing the seller?s purchase price. If the seller?s HUD-1 indicates that the sales price for the current purchase transaction is 100% or more greater that the sellers purchase price, additional documentation is required. This documentation includes the following: 1) A second full appraisal supporting the value from a FHA Roster Appraiser. The value used for the transaction must be the lower value of the two appraisals. (Required) FHA will not accept an AVM. (Note: The borrower can not be charged for the second appraisal. Either the seller of the lender must pay for the second appraisal.) Optional- Documentation supporting the increase in value was the result of renovation of the subject property (second appraisal is still required.) Appraisal must not the improvements/rehabilitation(s) that were made. Renovation costs are documented with one of the following: executed construction contract, lien waivers, cancelled checks with corresponding paid receipts for valid construction expenses. Valid construction expenses include: materials, architectural fees, supplies, labor, liability insurance on laborers, installation costs for water, sewer, well, ect., permits, non-recurring costs of obtaining financing including origination fees, discount points, title search, recording fees. This documentation should be scanned under the CRDTPKG doc type (separator sheet).
Example: A fully executed sales contract is dated May 23, 2003, with a sales price of $80,000. The seller acquired the property on January 17, 2003 for $40,000. As only 127 days have elapsed and the buyer?s purchase price is 100% greater than the seller?s purchase price, a second full appraisal supporting the value is required from an FHA Roster Appraiser. (Notes: Note that any subsequent re-sale of excluded properties must meet the requirements stated above. This policy does not apply when a builder is selling a newly built home or is building a home for a borrower who is using FHA financing. FHA reserves the right to implement future restrictions/requirements on re-sales within 12 months of the seller acquiring the property on either a nationwide or regional basis.