FHA 90 Day Rule – Revisited

FHA-SealI have noticed a lot of visitors come to my blog when searching about the 90 day FHA flip rule, so I thought I’d elaborate a bit more on my recent experiences.

We have closed five or six FHA transactions and have four more in escrow over the last year.  All fix and flips.

You cannot receive an offer until the 91st day!

There is a lot of confusion about this among investors, but if you take an offer on your flip, the date on the offer must be the 91st day after title recorded your purchase.

Banks have a lot of flexibility in the rules

The law states, that if the transaction happens from 91-180 days they can request a review appraisal.  In all the transactions we have done, this has only ever happened once.  Most of the time the underwriter requests that the existing appraisal provide 1 or 2 more current comps depending on the market timing.

A good appraiser can help you, by being creative

In our market right now, we seem to easily have a willing buyer and seller, but struggle to get an appraisal where it needs to be.  FHA offers still allow you to pick who will appraise the property.  The main one I use can actually use other offers (in a multiple offer situation) in lieu of additional comps.  House #12 we had many offers over list price and that helped our appraiser increase the value about $15,000 over what he originally thought it would be.

Underwriters have requested to prove what we did multiple times

The underwriter has asked that we provide backup on the repairs we did.  In both cases, I based the purchase price to the sales price with an added value form.  I basically said what the remodels we did are worth, not how much we spent.  You can be quite liberal with this.  For the last one, we had to stretch pretty hard, but I put in about 10 before and after pictures of the property which I think really helped.

FHA Offers take 60+ days to close right now

This is not true in all cases, but it seems like almost all of the FHA transactions we are doing take 60+ days to close escrow.  This sucks when you have carrying costs, but you should factor in a longer carrying time into your budget to make up for it.

The market is constantly changing, but this is what I have noticed over the last 6 months.

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5 Responses to “ FHA 90 Day Rule – Revisited ”

  1. Pam Parton says:

    Thanks for this helpful information. It is frustrating right now trying to help ready, willing and able buyers to get into one of these homes. Most first time buyers are using FHA. I have to tell you though, I have been getting FHA loans done in a very timely manner, 30 days or sooner. I have a great lender I work with, and she is awesome. So it can be done!
    .-= Pam Parton´s last blog ..15731 Pauma Valley Drive,Pauma Valley, CA 92016 =-.

  2. Jennifer says:

    Thank you for the clarification on the 90 day “sale” vs. “offer” rule. The wording says sellers cannot “sell” it, but as you stated, they cannot “accept an offer” until the 91st day, and it should read that way I think. I have a buyer that loves a house that just came on the market yesterday. The sellers bought it as a HUD foreclosed home, for $39K, on July 16th, 2009, had recorded deed on July 27th, fixed it up, and just listed it for $89,900 (over 100% of purchase price). I told my FHA buyers that we cannot write an offer until October 17th or 28th, and called the listing agent to see which date we were supposed to use (the sale date or the date the deed was recorded in the sellers name). The listing agent said that we can write an offer now and close on Oct. 28th, and will likely get multiple offers today, as there were 4 other showings yesterday. I told her I didn’t think that was true we could write the offer now, but she said her company (which does creative mortgage financing as well as real estate sales) has been doing flips all along, and as long as the FHA closing does not occur until the 91st day, you can write the offer sooner. I have a call into my buyer’s lender, Wells Fargo, but have not heard back yet so I thought I would research the internet… my broker agreed with me, and you, in that you can’t “write the offer” until day 91. Can you clarify the date as the date of purchase or the date the deed was recorded in the seller’s name, as in the case, was 11 days later. THANK YOU FOR ALL YOUR HELP!

  3. Steve says:

    Jennifer, just an FYI, that it seems the rule varies by the state and by the banks interpretation of the rule.

    In Atlanta, Georgia they can put it under contract but cannot record until day 91.

    Here in California, we cannot even accept the offer.

    So, it might be worth checking out. Certain smaller banks sometimes overlook the rule and can record on day 91.

  4. Mark Jensen says:

    Rumor has it that they are considering changeing the rule to a 1 year FHA flip on Jan. 1 2010. This Rumor comes from a very reliable source which states that it is almost for sure. Has any one else heard this? And if so, any ideas to work around the issue. They also said that fannie and freddie might addapt the rule also.

  5. Steve says:

    Hi Mark, I have not heard this one. But an appraiser friend of mine told me the opposite, that he heard legislation that they are going to completely remove the rule altogether.

    Honestly, I have no clue what will transpire and what the government will do. It is the true wild card of this ever-changing business.

    Buy properties that cashflow as rentals and are in areas you are willing to keep property in. Have multiple exit strategies. And never carry too much inventory. All these things can kill you.

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