FHA 90 Day Flip Rule … A Major Pain

fhaloansheaderIf you’re involved in flipping  houses, you probably have first hand knowledge of this rule.  If you’re wanting to get involved in flipping houses, you should know about this deal.

FHA requires that:

  • only owners of record may sell properties that will be financed using FHA-insured mortgages;
  • any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and
  • that for resales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property’s value. FHA also has flexibility to examine and require additional evidence of appraised value when properties are re-sold within 12 months.

In the boomtime the Federal Housing Administration noticed a lot of fraud involving owners that would buy a house and sell it, almost instantly, for a large profit.  More often then not they inflated the resale price by selling it to friends, family, etc and sharing the cash profit.

Fast-forward to todays market and this really ties our hands.  There is a glutt of properties on the market that need 10, 20 or 30 thousand dollars of repairs and can be found at a huge bragain.  But there is a very limited supply of inventory that is turnkey and move-in ready. For right now, the only solution we have come up with is sit back and hold the property for 90 days.

Why not just find a conventional buyer?
House #1 actually did go to a conventional buyer.  Keep in mind, most buyers with large down payments got their down payment from selling their previous house and moving.  Since all the equity has been eroded the only buyers that are left seem to have very limited down payment funds.

Should FHA change the rule?
They did, but only for banks and non-profits.  Some of my colleagues has brought this up with some of the FHA management and at this time they have no plans to re-evaluate the deal.

What does this mean?
When you are penciling out your repair budget you should factor in at least at minimum a 4-5 month hold-time.

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16 Responses to “ FHA 90 Day Flip Rule … A Major Pain ”

  1. stefane says:

    Can you go to contract prior to the 90 days. I am assuming it just has to close after the 90 days?

  2. Steve says:

    That would be logical, but most banks require the purchase contract to take place on the 91st day. So you cannot open escrow until day 91. The conventional deals we have done want it to close on day 91, but will allow escrow to be opened earlier.

  3. Joni says:

    This FHA ruling is a major pain for investors. I am currently trying to close on one of my investments that was purchased on 1/16/2009. We have yet to close. My first mistake was that the purchase agreement was signed prior to the 90 days. So, Steve is correct in saying that for an FHA buyer, not only does the closing have to occur after the 90-day waiting period, the purchase agreement cannot be signed prior to the 90 days either. Currently, the buyer’s lender is telling us that they cannot close on this property because the deed was not recorded until 4/22/2009. The lender is saying that they now have to wait 90 days from the time of recordation – not 90 days from the purchase date. I believe the FHA rule is 90 days from the purchase date which, in this case, would be 1/16/2009. So far, though, it’s a “no go”.

  4. Joel says:

    I thought this rule was lifted for one year? Also, it has been extend til may of 2010 from what I understand.

  5. Steve says:

    The rules has been lifted for banks who acquire through foreclosure, non-profit organization and a couple other organizations that regular people do not fit into.

  6. Mark says:

    Just purchased a home with a FHA loan. If I can find a buyer with a non-FHA loan then I can flip it without worrying about any time requirements, right?

  7. Steve says:

    Technically speaking, if you find a conventional or a VA buyer you should be able to do. You might run into appraisal issues and some banks will require you to wait 90 days on a conventional loan anyways.

  8. Dave says:

    Nearly all banks now have overlays to Fannie/Freddie that will require 90 day waits to finance a flip mirroring FHA

  9. liam says:

    I am a real estate investor and ran into title seasoning on a conventional loan. They are saying it is gonna be the same as FHA. Is this a new rule that just went into effect.

  10. Martha says:

    We have a seller that is being transferred & the closed on his home on october the 30th.
    He has a conventional loan but the buyer wants to go FHA.
    Can the seller show proof that he is being transferred & move forward?
    MMM

  11. Milla James says:

    Are you sure that it’s the same for a conventional loan. I am a buyer and instead of doing a fha loan I was thinking of going conventional. Do you still have to wait 90days if going conventional? does anyone know for sure?. If so what other steps can I take.

  12. Ryan says:

    I have been investing in and flipping homes now for 4 years and am getting sick of the news rules roiling out every time I turn around. Rules that make absolutely no sense when you really think about them. I am finding that it’s really hit-n-miss which banks require a 90 day deed seasoning on their 5% down conventional loans. Today I found 3 that did and 1 that did not require a 90 day window. I am assuming that sooner than later the practice of waiting 90 days will trickle down through all the banks. I guess I’m going to have to cut my crew in half so it will take 90+ days to finish a house!

  13. Sally says:

    I work with 2 lenders that do not have a flip rule on conventional financing….for owner occupied or investor.

    On FHA the rule is the contract cannot be written or executed within the 90 days.
    On the new flip I hear that 2 large major banks are not underwriting with the new guide. The old flip is still recognized. Does anybody know anything about this

  14. Krysta says:

    We are trying to buy a flipped house with FHA. Even though we can easily wait 90 days from the invesntor’s sale, our lender will not lend on the flipped home period. Right now it looks like the only bank that WILL lend is Wells Fargo, and the seller must prove that they are not making more than 20% profit.

  15. Steve says:

    Krysta – I don’t know who is telling you this, but they are completely wrong. Try a non-big brand name bank, we do it all the time.

    Where are you located. Try Mortgage Grapevine, and post your loan scenario.

  16. ray says:

    I am a banker at a major bank , the 91 day rule has OVERLAY conditions which bottom line keeps it at 91 days. Brokers ( other lenders not major banks) can get it done BUT they have major hurdles also and much more fees. Its still a mess and we need to wait and see.Dont spend a dime on a inspector till you have it all lined up.Inspectors report also will blow up your deal.

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