Renting to FHA Buyer to "wait out" 90 day seasoning 12 posts by 9 users

Posted: 08/19/2009 at 01:13PM

ok, I am trying to think outside the box, regarding short sales, and how to resell them to FHA end buyers. I am focusing on Southern California market.

I don't know FHA lending rules very well, except that you need to have 90 day title seasoning.

If I purchased a short sale, and then found a potential FHA buyer, could I rent the house to them for the 90 days, then submit the offer, and go through escrow, etc.

There are two issues I can see:
1) many agents won't want to hear they have to wait 90 days+ for their commission (no problem, I can get the buyers myself)
2) the appraisal that may come back 3 months later, could be different than it is today, that is okay, we can just adjust the purchase price. They either get it for the purchase price specified today, or the appraisal value, whichever is lower. I am only buying at 60-65% of market value anyway, so, I have some cushion.

I am not looking at this as the ideal, but more as a backup, if I go to flip a short sale and cannot find a buyer who's lender requires 90 day title seasoning.

Am I overthinking this? Do I even need to have a backup plan?

Any advice or opinion would be greatly appreciated.

Posted: 08/19/2009 at 05:57PM

A problem that I could see that has nothing to do with the FHA rules is what if the borrow qualifies for the mortgage today but in 3 months they can no longer obtain a mortgage. What do you do with your new tenants then?

Just the first thing that came to my mind!

Posted: 08/19/2009 at 06:19PM

I knew there was an issue...and I couldn't remember...and then AH HA! So I logged all the way back in to make sure your taken care of. FHA rule - 6 months seasoning if your living in the house you want to buy! Here is a statement from someone at BofA - Hope this helps!

This is not exactly a "new" rule, (it's been around for a long time) but your lender is correct in that it certainly is an FHA rule. FHA requires that if the buyer is residing in the subject property, they must be living there for six months before being eligible for an FHA loan.

It may seem illogical, but that's the law.

Further, you don't provide much info on the "flip" house (when you bought it, how much you paid, what improvements if any you made) but there are also rules governing -- and in many cases prohibiting -- FHA financing of houses that are deemed to be a "flip" In fact, FHA guidelines even use the term "anti-flipping".

From: Bank of America Home Loans

Posted: 08/19/2009 at 07:03PM

Thanks for all the excellent input!

Posted: 08/19/2009 at 08:38PM

Henrik, same issue as what Christina mentioned. It goes from 90days to 6 months

overall, just not a good idea

Posted: 09/17/2009 at 03:01PM

Great Idea Ryan! Thanks.

I will have to try that.