Buy a Flipped Home, Get an FHA Loan. Like Oil and Water—Or Do They Mix?

Once upon a time, way back in 2003, the Federal Housing Administration instituted a 90-day wait for sales of homes by flippers. And to this day, only those who’ve owned for more than three months may sell to buyers who get FHA loans.

Clearly, flippers need to keep this in mind. FHA-backed mortgages, of course, are popular options for all kinds of buyers. Quite a few are first-timers striving to establish their credit profiles. People with credit scores of 580 can be eligible to put as little as 3.5% down, if they meet all other criteria. So that’s a wide pool of potential buyers. And these buyers sometimes do find homes listed by sellers aiming to make quick resales.

Why Does the Rule Exist?

A flipped home is one that’s bought and sold in a short time. But how short is too short? According to the FHA, too short is 90 days or fewer. The FHA won’t lend to a buyer before the home has belonged to the seller for 91 days.

This timing rule has the following effects:

By slowing down super-quick flips, the rule leaves adequate time for quality repairs to be done.

The rule sets aside time for completion of fair appraisals and accurate inspection reports, and overall due diligence in a home purchase.

The rule gives a renovated home time to be re-evaluated according to a new appraisal and recent sales within the surrounding market.

In short, it’s meant to limit risk — for individual buyers, and maybe even for whole neighborhoods. Wild swings in valuations signify risks in the housing market, just as they do in the stock market. Indeed, the FHA doesn’t want the seller earning more than a 10% markup after the renovations. If a flip fetches 10% or less, the FHA loan could be approved without a waiting period.

Reasonable Enough, Right?

Depends who you ask. Some say it’s a bad thing to slow flips down in any circumstances, when so many people need homes. They might believe the government is overstepping its boundaries by imposing restrictions on flippers.

Others support the FHA’s take on this. The 90-day rule is fair, safe, and not overly burdensome, they believe.

And maybe it’s not such a big deal. Flippers can still advertise the property during the 90-day period, and a buyer can, at least, make a preliminary commitment. The rule is simply not to sell the home in that first 90 days.

Most flips take more than three months in any case. Purchasing, restoring, repairing, reappraising, advertising, and finally selling a home? You’d have to be pretty amazing to get all that done in under three months. Don’t forget: An appraisal and an inspection are both needed for an FHA loan. These services aren’t always possible to fast-track.

How does the FHA keep the rule working? With a related rule, of course! Financial institutions must contact the county recorder of deeds as they prepare to approve a borrower. Was the home’s last recorded deed at least 91 days before the borrower’s closing day? Then OK. The lender can go ahead and make an approval decision.

When Can Exceptions Be Made for Quick Sales?

Typically, a flipped house has been renovated, and then resold. But there are other reasons people might record their new deed and then quickly offload that same home. Some of them won’t trigger the 90-day minimum holding time.

The FHA allows for these exceptions to its 90-day rule:

New construction is fine to sell to an FHA-backed buyer. From the FHA’s perspective, new construction can be straightforwardly appraised and valued.

Inherited property is fine to pass along to an FHA-backed buyer before 90 days is up. It’s normal for estates to promptly offload their properties and satisfy the estate’s debts.

People moved by their employers may use FHA loans to buy homes without worrying about the 90-day rule — if their companies are paying for the homes. (Nice work if you can get it!)

Government-owned homes resold on the market have no 90-day waiting period. The 90-day rule does not apply where a federal, state, or local government is reselling homes.

Same for home purchases allowed through the Department of Housing and Urban Development, where the president declares a major disaster. In these situations, FHA-backed financing is OK, even for homes resold within 90 days.

Non-profits that buy homes can sell them without adhering to the FHA’s normal 90-day waiting time, too.

Note that some lenders are willing to help clients skip the 90-day waiting period under certain circumstances, when a second, separate appraiser’s report has been submitted.

What Other Timelines Affect FHA-Backed Purchases?

Maybe the seller has owned the home for more than 90 days. But any time a deed changes hands more than once in a 180-day span, the FHA asks for a second, FHA-approved inspection and appraisal. By now, readers can probably guess why. As we’ve noted, it’s considered risky for buyers and local markets if homes are revamped too quickly. And once a flipped home is back on the market, its price should appropriately reflect both the local market conditions, and the condition of the home itself.

An additional timeline involves mandatory primary residence use. FHA mortgage borrowers are expected to live primarily in the homes they buy for one year or longer.

That said, an FHA borrower can still work from home — remotely, or independently. An FHA borrower can also rent out part of the property. The property can contain up to 4 units, and up to 3 of those 4 units can be rented out while the borrower lives on the property for at least a year.

Curious about how these setups work? Speak with a mortgage consultant about FHA rules and local zoning.

The Simple Takeaway? “It Is What It Is”

Those who use FHA loans must be comfortable with the FHA’s rules. Anyone who sells to an FHA borrower needs to be OK with them, too.

One of those rules is the 90-day waiting period. Another is the 180-day rule requiring re-appraisal. Yet another important FHA rule? The FHA mortgage borrower must live in the home for one year or more.

What if no exceptions apply, but the parties need to do things faster? It would be helpful to speak to a mortgage consultant about alternative loans.

All things considered, does the FHA limit the returns investor-owners can make for the time and effort they put into renovating homes? To some extent, yes. And yet for most people, the FHA limits shouldn’t be off-putting. They just form a timeline for buying a home with FHA-backed financing.

Supporting References

Troy Reichert for Reichert Mortgage LLC (Colorado), via ReichertMortgage.com: FHA Flipping Rule for 2023: A Guide for Buyers (Dec. 7, 2022; updated October 20, 2023).

Ryan G. Wright for TheInvestorsEdge.com: What Is the 90-Day Flip Rule in Real Estate? (Nov. 11, 2020).

New Silver Lending LLC, via NewSilver.com: What is the FHA 90-Day Flip Rule? (Nov. 28, 2023).

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