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FHA Suspends 90-Day “Anti-Flipping” Rule For Another Two Years

by Brandon Turner on December 5, 2012 · 44 comments

  
FHA Anti Flipping

ANNOUNCED: Potentially great news for house flippers this week as the Federal Housing Authority announced they would continue their suspension of their “90-Day Anti Flipping” rule until December of 2014 for all FHA insured loans.

Background to the 90 Day Flip Rule:

The “Anti-Flipping Rule” was enacted in 2003 and was aimed at curbing what the FHA called “Property Flipping,” in which “a property recently acquired is resold for a considerable profit with an artificially inflated value, often as the result of a lender’s collusion with an appraiser.” (Source: FederalRegister.gov)

The Anti-Flipping rule affected those mortgage borrowers who were using FHA-insured mortgages to get their loan. The Anti-flipping rule simply stated that the FHA will not insure a mortgage if the seller had purchased the home within ninety days. FHA-insured loans are one of the most popular loan choices in the lending world- especially for first time home buyers- because of their low down payment (3.5%) and credit requirements.

In 2010, the FHA suspended this rule due to the struggling economy in an attempt to move the excess inventory of homes off the market and move buyers into those homes. According to the Department of Housing and Urban Development, “HUD believes that it has made a significant contribution to neighborhood stabilization.”

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The Specifics of the Anti-Flip Rule Suspension

The suspension of the Anti-Flipping Rule contained several key rules that must be still be adhered to in order for the FHA to insure the loan. Those rules are:

  1. There must be no “identity of interest” between the buyer and the seller (also known as being “arm’s length.) In other words, the buyer and the seller cannot be in cahoots together.
  2. If the sale price is greater than 20% above the seller’s acquisition price, there must either be records provided that document the reason for the increased value or a second appraisal must be performed by an FHA-approved appraiser. Additionally, if the sale price is greater than 20% the seller’s acquisition price there must be a property inspection performed on the property (though the inspector does not need to be an “FHA inspector.” If the inspection report notes that certain repairs are required due to “health and safety” then those repairs must be completed prior to the closing of the sale.
  3. Only “forward mortgages” are eligible for the waiver – not reverse mortgages (HECM.)

What the Anti-Flipping Rule Suspension Means for You

This news comes as a relief for both investors and home buyers, as FHA borrowers can have full access to the homes on the market – including those recently “flipped” by the seller. For house flippers, timing is often one of the most expensive factors contributing to the bottom line -as the expensive costs of financing property flips can often mean the difference between success and failure.

How does this news make a difference for you and your business? Leave a comment below and join the conversation!

Photo: Nicholas A. Tonelli

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{ 43 comments… read them below or add one }

Jaime December 5, 2012 at 5:31 pm

I’ve been getting hit with these on conventional loans also on investment properties. It doesn’t seem it is restricted to retail flips. Hopefully it will go away soon and lenders will realize that all buyers (well most) are getting killer deals in this market.

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Brandon Turner December 7, 2012 at 10:44 pm

Thanks for the comment Jaime. I’m with you – if only the banks thought with common sense!

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Glenn Schworm December 5, 2012 at 5:54 pm

From our experience, even though the FHA has lifted the 90 rule, banks have not. Has anyone found a bank that will honor the 90 day rule lifting? Every house we sell, if the buyer is FHA needs to have a contract signing date on the 91st day of ownership. Even if we finish a house on day 35 of ownership, and sell it the same day, an FHA buyer and I can not begin the selling process in any way prior to the 91st day. We have flipped over 90 homes in the past 4 years so if someone has a way around the 90 day rule, please share!! I am very curious of the replies and hope I am wrong!!

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Brandon Turner December 5, 2012 at 7:09 pm

Hey Glenn- that’s a really interesting issue. I haven’t had it – but I haven’t had a house less than ninety days in a while. Will they let you get the whole loan ready to close and then make closing on day 91? Or do they not even let the person apply until 90 days have passed?

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Glenn Schworm December 5, 2012 at 9:37 pm

Unfortunately no! You can’t even start the application process until day 91. I fought it hard for a while about 2 years ago. Through my research I found out that yes indeed the govt lifted the seasoning requirement, but there was so much fraud in the mortgage industry from a few years ago that the banks decided it was a good policy and decided to keep it. After much discussion with lenders they explained that 90 days will usually be enough time to show active fraud. These criminals still try to find ways to scam the system and this time is protection for the banks on their FHA loans where they are more exposed. It is too bad that a few crooks have spoiled it for so many others.

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Danny Johnson December 5, 2012 at 9:29 pm

This is exactly what we’ve been experiencing as well, unfortunately. It’s a real pain in the but when the majority of your buyers go FHA. I’ve gotten to where I hold off on starting the rehab for a little while. Drives me nuts just letting properties sit there costing me money. I’d also love to hear if anyone has found a lender that honors the lifting.

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Glenn Schworm December 5, 2012 at 9:57 pm

Hey Danny, we tried waiting also figuring it didn’t matter. We found out that it actually does matter. If the typical rehab takes 4-6 weeks (or 6 days if you watch the tv shows :-)) and then the sales cycle can take anywhere from 1-3 months, doing the renovation immediately is still a plus. If a house is completed and sold on day 1, then you may need to wait about 6 weeks to start the contract. We tell the buyers that since they are an FHA buyer we will need to hold off until the 91st day and that will cost us money, but if they really want the house we will hold it for them provided we can do the contract now, predated, and get the deposit in escrow. Some buyers may even switch to a conventional product if they are able. This creates some urgency and makes them feel special like we are making a special concession to hold it for them. If we do not sell the house in the first day or week but instead it takes 6 weeks, well then we are already at the 91st day. Much better than starting the rehab later and stretching the whole cycle out longer. Rehabbing immediately hedges your bets and every so often a conventional buyer comes along and buys it on day 1 for full price! That’s always a good day. Hope that helps!

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Danny Johnson December 6, 2012 at 8:20 pm

Wish we had more conventionals. We’ve had issues with buyers wanting to close sooner and move in. This has caused people to change their mind on several occasions.

I don’t wait a real long time before starting rehab, I’m just not in a hurry to start on day one.

Kim Kramer December 10, 2012 at 2:11 pm

I had one I sold that was able to go through, but my seller had to show every receipt he had. It was just a big of a pain as waiting until the 91st day. However, we did close before the 90 days was up.

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Rook December 16, 2012 at 4:44 pm

Ive seen this both ways, Ive had a couple deals not close because of the same issues. I do however now have a broker that I send the buyers to now that can close loans earlier. I can’t remember if they are fha though since Im the seller it didn’t really stick, ill ask and post back. Before that I just had the buyers do a lease w/ option set for an early option period. I actually like this on rehabs as they can be sold before the project is done and the buyers pick colors etc plus money upfront before.

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Julie Oldham December 6, 2012 at 8:33 am

I’m new at this, and first, I’d like to thank all of you. This is my first comment, but I’ve been reading all of your articles and comments for the last year. I’ve learned so much from everyone’s experience! That said, I did my first flip this year. Rehab took two months, we were under contract in a week. The price increase DID come up for my buyer, she was using conventional financing with 5% down. However, we were able to handle this with a detailed letter to the lender spelling out exactly what we had done to the house to make it worth 50% more than our purchase price 60 days previous. But I had purchased the house with a conventional mortgage from a private seller. I’ve also acquired a couple of rental properties this year through the “Homepath” program, this is the Fanny Mae version of hud. I like the low 10% down and no appraisal requirement, but I’m given a restricted deed that forbids me from selling the home within 90 days.

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Brandon Turner December 6, 2012 at 8:42 am

Hey Julie – Thanks so much for the information! And congrats on your flip! You seem to be doing well with your entrance into the real estate world. And I need to look more into that Homepath thing for investors! Do you have an account over on BP? Be sure to send me a colleague request!

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Julie Oldham December 6, 2012 at 9:32 am

Can’t seem to find a “colleague request” button… :-/

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Brandon Turner December 6, 2012 at 9:34 am

Hey Julie – Check out item number one on this post:

http://www.biggerpockets.com/renewsblog/2012/12/02/awesome-things-i-didnt-know-about-biggerpockets/

The colleague request button is right below my picture when you click the words “Connect.”

Travis Padgett December 6, 2012 at 8:36 pm

Julie i also have purchased properties from homepath but i had to put 20% down and get a convential loan with an addenda saying i can not sell the property for six months to a year could you tell me how you did yours with just 10% down thanks and also if you had any trouble with getting the house to appraise so that you could get a conventional invester loan because of the condition of the house

Julie Oldham December 8, 2012 at 12:59 pm

@Travis I think the Homepath loan requirements must differ geographically. I’m in the metro Denver area, 10% is what’s required for a downpayment here from investors. I was just looking at the Homepath available in Florida, I didn’t see that listed there. I also didn’t see anything where you live! Did you use a “Homepath” lender to buy your property? There are other advantages to these here, maybe where you are, too.

Travis Padgett December 11, 2012 at 4:53 pm

Julie I did not use a homepath lender i will have to check into that i have all but stopped bidding on homepath homes though because all the investors here just drive up the costs to high once it comes off of the 15 day firstlook

Bob Pappas December 6, 2012 at 8:57 am

Why not use a rent to own contract as a way to handle the 90 day rule? After all, it’s a lease agreement with an OPTION to purchase, not a sales contract. Just spell out all negotiated terms in the option agreement, and set an expiration date that is at least 91 days into the future.

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Brandon Turner December 6, 2012 at 11:44 am

Hey Bob, it’s not a bad strategy. The only problem I see is that a lease option restricts the seller from selling to anyone else, but the buyer could still walk away without a legal problem. I suppose that is where a heavy down payment (i.e. earnest money) would come in handy. Thanks for sharing Bob!

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Bob Pappas December 6, 2012 at 12:50 pm

A heavy option consideration (earnest money, down payment) is a key ingredient. In a way, the option agreement is the same as a purchase agreement. A purchase agreement also restricts the seller. I think the biggest risk is the fact that the option agreement would probably cover a longer period of time, and, of course, possession of the property. But, one could specify some sort of monetary damages (in addition to the option consideration) if the lessee opts not to exercise. Also, the issue of possession could be handled with a sublease where the “seller” maintains possession as a sublessee. I know this can get messy, but it can be a way around the Anti-Flipping rule.

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Phil Pustejovsky December 6, 2012 at 11:06 am

Glenn & Danny,
We ran into the same issues. The news says the anti-flipping rule is lifted but in the real world, most of the mortgage companies still enforced it. The good news is that some mortgage companies get still get it done.You may have to call a bunch of first time homebuyer FHA lenders to find one, but in our experiences they do exist. Start with lenders that work with first time home buyer home builders. Home builders are the world’s best at finding funding sources for borrowers.

I was once a mortgage broker and the ol’ saying in the industry was, “Everybody gets their money from the same place so if I can’t get you the loan, no one can.” I later learned how un-true that really is. No two mortgage people are the same. Some mortgage people have better relationships with their AEs and their Underwriters and can get deals through that other mortgage brokers can’t. Mortgage bankers can be good because they service the loans they originate so they can get deals done that others can’t.

We’ve worked with lenders that will even take the loan in house, service it for a year, then once the seasoning is there, sell it on the secondary market.

There are tons of different mortgage companies out there. If you knock loud enough and long enough, you’ll eventually wake someone up.

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Danny Johnson December 6, 2012 at 8:23 pm

Thanks, Phil. I’ll need to start looking for these lenders.

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Suzy December 6, 2012 at 11:40 am

Great article Brandon! We were waiting to hear what the buzz was going to be. Even though FHA has lifted the sanctions for another year, I agree with Glenn that locally, the banks didn’t get the memo. We have had several flips go to FHA Buyers this past year and each time, the requests that came from the lender were different. We had one house that we had had for over 3 months and we were STILL required by the lender to pay for a second appraisal, produce a list of renovations including a line by line cost detail done to the property. Incredible!

I have also found that many of the Realtors and Mortgage professionals that we have come in contact with through our Buyers are not aware that these “guidelines” that we faced with don’t come directly from FHA but from their Lender of choice! I have even gone to the FHA website and highlighted to them their seasoning guidelines and they STILL are convinced that it’s not their institution.

I am definately going to share this article with these and other individuals.

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Brandon Turner December 6, 2012 at 11:42 am

Thanks Suzy! I love getting first hand experiences with news like this!

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Luis December 6, 2012 at 12:10 pm

I have flipped two houses in the last 3 months and both of them I have owned for less than 90 days. For one the buyer purchased with FHA loan and for the other it was conventional loan. So I know it is possible to resell in less than 90 days. HOWEVER…you have to take certain steps. This is what I did:

1. When I get an offer from a potential buyer the first thing I do is call their lender and flat out tell them that I have owned this house for less than 90 days to see if they can even do the loan. The buyers lender told me he would not do it. (This single step saved me weeks if not months of dealing with an incompetent lender only to find out they will not do the loan).

2. Now that I know their lender will not do it I propose to the buyer to use MY preferred lender. I do this because my lender can do an FHA loan for properties owned less than 90 days.

3. For an FHA loan on a pre-90 day property two appraisals will be required so I offer to pay for at least one appraisal.

4. I keep record of every dollar that I have spent renovating the house because I will need to provide such records to the appraiser and/or the lenders underwriter in order to justify the increase in price.

So the bottom line is that there are lenders out there that will do loans on pre 90 day properties but it’s not every lender. So just because one guy says no it doesn’t mean another one will. So you have got to keep looking or better yet find one even before you list the house for sale and try to convince your buyer to use him.

Believe me, I learned this lesson the hard way…

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Brandon Turner December 7, 2012 at 10:46 pm

Great tips, Luis! Thanks!

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Luis December 6, 2012 at 12:12 pm

Oh, I forgot…there are lenders out there that aren’t even aware of the FHA 90 day waiver! So I keep a copy of the waiver and send it to them to prove to them that it’s perfectly fine to do it.

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Glenn Schworm December 6, 2012 at 2:01 pm

Luis,

Thanks for the info , we will do more research to see who we can locate. Where do you find a copy of the waiver?

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willie bady December 6, 2012 at 6:30 pm

My wife e and I just sold a property for 156,000 that we purchase for 44,000.00, purchase with hard money spent another a 23,000.00 rehabbing it and sold it for 156,000.00 with in 4.5 month. We went thru two appraisals, which was a surprise to me. Funny coming across this article

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Brandon Turner December 7, 2012 at 10:47 pm

That sounds like a pretty great flip, Willie! Congrats!

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Kurt December 6, 2012 at 9:20 pm

Luis,

That is really great info, thank you. Glenn, I have attached the link below:
http://portal.hud.gov/hudportal/documents/huddoc?id=waivpropflip2010.pdf

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Peggy December 17, 2012 at 12:12 pm

Hi,
I am still new and have not flipped my first house yet. I have had several realtors tell me what I was attempting to do was against the law. In fact some even got hostile with me. I asked my Title agent, who is also my lawyer, he said it was not against the law and I could buy fix and flip. I have not made it far enough in the process to see what the banks will do here yet.

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Brandon Turner December 17, 2012 at 12:19 pm

Hey Peggy – yeah, fixing and flipping is definitely not illegal. How odd! What is it that you told the Realtors that you were trying to do?

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Phil Pustejovsky December 17, 2012 at 12:56 pm

CLARITY! I connected with one of my favor mortgage people about this subject of no title seasoning loan origination and why some investors seem to have no problems with it while other do. Here’s the technical details as described by one of my favorite mortgage contacts…there are basically three types of lenders; direct, correspondent and those that broker through the wholesale department. Therefore, you could get a Wells Fargo loan from a direct Wells Fargo mortgage banker, a correspondent Wells Fargo mortgage origination company or a broker that originates through the wholesale division of Wells Fargo. The differences are quite significant. For example, the wholesale division of Wells Fargo requires 90 days title seasoning on FHA loans whereas direct Wells Fargo lenders do not have that underwriting stipulation. So if the buyer of a property that you are selling within 90 days of your purchase is going through a mortgage broker who is going through the wholesale side of Wells, that loan won’t go through. BUT, if they go through a direct lender, it will go through. Same with Fannie Mae loans. So if you are having difficulty getting the buyers of your rehabs and flips into FHA loans before the 90 day mark, you need to switch to a different lender, preferably a direct lender. NO TWO mortgage people are the same. If you’re mortgage person can’t get it done, it doesn’t mean that everyone of them can’t…it just means that the one you are working with can’t. I hope this detailed explanation helps you all in the future. Next time you talk to the mortgage person working for the buyer, ask, “Are you a direct lender, correspondent lender or do you broker the deal and work through the wholesale division of the lender?”

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Brandon Turner December 17, 2012 at 6:46 pm

Hey Phil thanks for the great answer! I’ve found the same to be true – if one lender can’t do it, just ask another. It’s amazing. Now it makes more sense why! Thanks!

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Justine December 28, 2012 at 4:57 pm

I have read on this website and one other about the extension thru 2014, however I couldnt find it on any FHA website. Where I can I find the source of this? Thanks

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Brandon Turner December 28, 2012 at 5:03 pm
Justine December 28, 2012 at 5:06 pm

Great. Thank you!

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Mark Ferguson March 28, 2013 at 9:41 am

Hi Brandon,
I just heard from our local Bank that FHA may now change the flip rule to be 6 months! Have you heard anything about this?

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Rook May 6, 2013 at 10:12 am

As I posted way up at the top I have closed multiple before the 90 day rule with the end buyer using fha through my broker (i verified this finally). I had buyers that tried to use their own and get denied. If you have issues find a broker that can do it and lead your buyers to them. I did a couple that insisted on using their own loan officer or broker. Those ones I gave them the lease with option to purchase.

Fyi Ive done a couple in the last few months this way so I know its possible even now. That being said Im in WA state, so I suppose different states my have their own stuff going on, although I doubt it.

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Joe June 15, 2013 at 3:30 pm

I have a seller that purchased a property for cash at auction for 76,000. We collected a contract within the 90 days for 110,000. This is more than the 20% within the 90 days. We had the first appraisal and it came in at 115K. We are waiting on the second appraisal. I’m trying to determine if my seller has a penalty to pay for flipping in under 90 days for over the 20%. There are two items to be repaired for the required professional inspection. If a penatly would be due, is there any way of finding out?

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Teresa April 3, 2014 at 11:36 pm

Hi, all. I am a newbie in the investing world, and was trying to find different avenues to invest in. So, I looked into Hud homes and came accross these posts. Some of you have mentioned that in spite of the FHA 90 day flipping waiver; most banks are still going by the original rule. My question is: Do you all have real estate agents to help sell your homes? If so, do that not have information on banks who are honoring the waiver? Thanks.

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Willard Rockwell August 3, 2014 at 4:46 pm

We have dealt with this frequently. Caused us to wait a month to rewrite and close a contract on a sold property. Almost lost the buyer, but they were willing to wait. NO BUYER NEEDS TO WAIT. I am willing to join a class action lawsuit against HUD to stop this abuse of citizens who are trying to grow the economy. Flip homes that are properly renovated, brought up to code with everything that was broken now repaired are NOT a risk. They ARE worth considerably more money than we paid for it or put into it. HUD, by the way, is flipping homes all over my area, with no improvements, flagrantly bloated prices and criminal restrictions on buyers that will fine them if they resell the house too soon. We all know Freddie Mac, Fannie Mae and by extension HUD were all involved in criminal collusion prior to 2008 forcing banks to loan to unqualified minorities. Did anyone notice JP Morgan Chase paying a BILLION dollars in fines for their involvement? Why has no one in the government been fined a billion dollars and gone to prison for 20 years? Rest assured we will help make this dream come true as well. Lets put HUD out of business for good.

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