Important FHA Property Tips


1.) Prohibition on Property Flipping

• All properties must be purchased from the owner of record and cannot involve any sale or assignment of the sales contract

• If the seller/owner of record has owned the property for 90 days or less from the date of acquisition, the property is NOT eligible for a mortgage insured by FHA. The date of acquisition is defined as the date of settlement on the seller’s purchase of that property. The resale date is defined as the date the new buyer signed the sales contract; Exceptions include resales by relocations agencies, resales by employers to employees; sales of HUD owned properties, inherited properties and real estate owned sales by other federal agencies. Foreclosures with purchase agreements signed on or before May 10, 2010 are also exempt from the requirement.

• If the resale date is between 91 and 180 days: a second appraisal will be required if the resale price is 100% or more over the price paid by the seller when the property was acquired; the second appraisal cannot be paid by the buyer.

• If the resale date is between 181 days and 12 full months: a second appraisal or other additional documentation MAY be required at the lender’s discretion if the resale price is 5% or greater than the lowest sales price of the property during the preceding 12 months.

2.) For 3 and 4 unit properties, FHA requires them to be self-sufficient, regardless of occupancy status. The maximum base mortgage amount is limited so that the total estimated fair market rent for all units, including the proposed owner occupied unit, less the 15% vacancy/maintenance factor for this area, must be greater than or equal to the proposed PITI for the subject property. Three months PITI reserve is also required.

3.) Properties having a private well and/or septic system will require connection to public systems whenever feasible. This requirement can be waived if the cost is documented by a plumber/professional and it exceeds 3% of the value of the property. A satisfactory Title V certificate is required in Massachusetts

4.) A domestic well must be a minimum of 50 feet from the septic tank, 100 feet from the septic tank’s drain field and a minimum of 10 feet from any property line.

5.) Any nonresidential use of the property must be subordinated to its residential use and
character. A property, any portion of which is designed or used for nonresidential purposes, is eligible only if the type or extent of the nonresidential use does not impair the residential character of the property. Areas designed or used for nonresidential purposes may not exceed 25% of the total floor area, including storage areas or similar spaces that are integral parts of the nonresidential use.

6.) There are no limitations on the number of properties a borrower may own. However, the borrower may not have more than 1 open FHA mortgage at one time. Some exceptions to this rule do apply and can be considered on a case-by-case basis. The owner occupancy of the new FHA mortgage request must make sense.

7.) FHA limits the LTV to 85% on Identity of Interest transactions. An Identity of Interest transaction is defined as a sales transaction between parties with family or business relationships. Financing above 85% is allowed under certain circumstances.

8.) Non-occupying co-borrowers are allowed but are limited to single family properties only, if the LTV exceeds 75%. Non-occupying co-borrowers must be related by blood, marriage or law, or for unrelated individuals that can document evidence of a family type, longstanding and substantial relationship, not arising out of the loan transaction. If a parent is selling to a child, the parent cannot be the co-borrower with the child on the new mortgage unless the LTV is 75% or less.

9.) Effective with all case numbers issued on or after November 2, 2009, FHA condos must be on FHA’s approved list or must be submitted to HUD for approval. Condos currently on the FHA list must also be 51% owner-occupied, must not be subject to special assessments and pending litigation.

10. ) If the dwelling or related property improvements is located within the fall distance of a high-voltage transmission line, radio/TV transmission tower, cell phone tower, microwave relay dish or tower or satellite dish – the property is not eligible for FHA financing.

11.) Dwelling or related property improvements located within 10 feet of a high pressured gas transmission line easement are not eligible for FHA financing.

12.) If the property is within 300 feet of a stationary, storage tank containing more than 1000 gallons of flammable or explosive material, the property is ineligible for FHA financing

13.) Fuses and/or circuit breakers are acceptable as long as minimum electrical service is 60 amps.

This list was kindly provided by:

Please take a look at the attachment and let me know if you have any questions. I have been looking out for these items for years but this could be especially helpful if you are listing a property and an FHA preapproval comes in from someone besides us.

Thanks, and please let me know if you have any questions.

Best Regards,


Joseph G. DeMarco, CMPS®
Certified Mortgage Planning Specialist
DeMarco Mortgage Team
Greenpark Mortgage Corp.
office 508 520-7888
Fax 508-520-7880
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