Thursday, February 25, 2010

FHA 90 Day Flipping Rule Suspended for 1 year

Great news for investors! Admitting that it is in fact possible to buy, rehab, and sell a property in less than 90 days, the Federal Housing Administration (FHA) has suspended it's infamous 90 day seasoning requirement! This is also great news for home buyers, as this suspension should effectively allow quite a few more houses onto the market that otherwise would be just "seasoning" (aka sitting) on the market for 90 days.

Before we get into this too deep, lets first get an idea of what this seasoning requirement originally entailed. Basically, since 2003, the FHA has required that a house is "seasoned" on the market for 90 days before it is allowed to be resold. This means that an investor or any other person who purchased any property, property for rent or for selling, had to wait for approximately 3 months before they were allowed to sell the house to an FHA insured buyer.

More than anything, this was done to prevent people from buying a house and immediately selling it at an inflated price to a naive or uninformed buyer. Luckily, over the past several years, most of the riff raff has been weeded out of the market, and this type of practice isn't as widespread, or even really possible (as you will see from the rest of this article).

So, this is obviously good news for investors, but why is it good for home buyers? Well, per the official waiver:

"...the 90-day resale restriction often hinders community stabilization and revitalization." They also said:

"FHA borrower, because of the restrictions we are now lifting, have often been shut out from buying affordable properties. This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

Basically what this means is that more houses will be put on the market that were otherwise just sitting there collecting dust. Consequently, this presents more options for people looking for the perfect house!

BUUUUUUT......before you get too excited, it should be noted that there are several specific nuances to the waiver that investors and home buyers alike should both be aware of.


1. Seller MUST Hold Title

In other words, the person who is selling the house must legally and officially own the property, and thus, be on title. In fact, FHA will expect to see the investor/seller as the owner of record as of the date the contract to sell to the FHA buyer is executed. Long story short, no more back to back, same day closes to FHA end buyers. Sorry.

2. You Still Need Short Term Funding

Basically what this means is that if the property doesn't sell immediately you need to be financially able to make the payments. Be prepared to come up with short term funding for however long it takes to sell the house. Luckily, in most cases, it is easier to find 30-60 day financing compared to 90.

3. Is There A Flipping Pattern?

This is an easy step. FHA mainly wants to know that the subject property doesn't display a history or pattern of previous flipping activity. You can go and check the title from last year to see if the property has changed hands very often. Best case scenario would be not at all.

4. The 20% Rule

If the sales price exceeds 20% of the previous purchase price, you will have to show proof that you actually made repairs making the property worth that much more. This is done to ensure the sale is legitimate, and can include a full FHA inspection, or even a second appraisal. The best way to combat this is to simply take accurate records as proof of what you did to enhance the value of the property. Take plenty of before/after pictures, document the entire process, and you should be fine.

Other Important Points:

- All transactions must be arms-length

- Assignments of a contract for sale will trigger a red flag. No taking over deeds for people.


The better documented your case, the better chance you have of the process going smoothly. As always, if you have any questions please don't hesitate to CONTACT US and we will reply to your query as soon as possible. I also urge you to read the original waiver from the FHA regarding the subject matter:

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