90 day flip rule???

Question

I've come across this on the last few flips and wanted to see if anyone has any ideas of a way around the following example.

Buy a home on January 1 with the intent to renovate and flip it.

Complete the renovation by February 1st and put it on the market.

Have a signed purchase agreement by March 1st and the buyer then applies for the mortgage (60 days or so from the day i buy it to having it under contract to sell).

Since the purchase agreement was signed less than 90 days since I took title the lender asks for 2 appraisals and a home inspection and requires everything on the home inspection to be fixed.  The home inspection isn't typically an issue but they demand the seller to pay for the second appraisal around $500.00).

I know FHA removed the flip rule years ago but I see most lenders still asking for this.  So is there another way around this or should I wait 90 days to put the house on the market or go through the hassle and expense of paying for an extra appraisal and having to fix every little nitpicky thing on the home inspection?

Ted Akers · Answer

Hi @Ben Bakhshi

Please update us later if Quicken loans does fund a flip inside of 90 days.  Most lenders will not fund inside of 90 days if it is a conventional mortgage (FNMA or Freddie).  Just a suggestion, but you may want to request who you spoke with to ask their underwriter based on your detailed explanation of the deal and timeline.  I suggest this because most loan officers, especially at larger lenders, deal with mom and pop buyers and not investors flipping properties.  I hope it works and would love to hear that it does.

Ben Bakhshi · Answer

Just called QuickenLoans and they told me that they can provide a mortgage to a buyer within the 90 day window. YMMV

Travis Daggett · Answer

@Craig Brouillette -

We leased to our buyer for 90 days on one of these. Just make sure you protect yourself w/ a significant NONREFUNDABLE EM deposit/option fee.

Hope that helps!

Wayne Brooks · Answer

The "inspection" you mention is not an FHA/90 day flip item, only the second appraisal is.  That is an additional hoop the Lender is creating, unnecessarily.  Use a different lender.

Justin S. · Answer

@Craig Brouillette We are finding the same thing, but it depends a lot on the lenders.  Some are very picky about it and some do not even bring it up.  As for the 2nd appraisal, as far as I know, the only requirement is that the buyer not pay for it.  You can try to put it back on the lender to pay for it.  Or if they go with one of your preferred lenders, then you can offer to pay for it.

Ted Akers · Answer

@Craig Brouillette

FHA over the past three years fortunately allows a resale within 90 days of your purchase, but with a requirement that two appraisals be done if the resale price exceeds 120% of your purchase price.  The irony is that the 120% does not allow for rehab dollars you spent.  Individual lenders underwriting for FHA can also impose a 2nd appraisal requirement even if the resale does not exceed 120% of your price as a CYA procedure.  If you wait until day 91 for your sale contract you should typically avoid the 2nd appraisal requirement.

We do have to count our blessings that FHA allows resale within 90 days, because the vast majority of conventional lenders require 90 days of "title seasoning" with no exceptions.  My understanding is that it is not required by FNMA or Freddie Mac but has become customary standard operating procedure.  If you can find one and route your buyer to a portfolio lender you may avoid the title seasoning issue.  However, portfolio lenders are a rare find these days.  Most likely candidates are local banks or credit unions that may not impose title seasoning requirements.

Craig Brouillette · Answer

@wayne brooks

Of course any decent reno already takes care of FHA required repairs, but I think the point you missed was that the buyer's lender typically only sees an appraisal and bases any repair request on that appraisal.  A home inspection goes above and beyond that so when the lender sees the inspection it's a whole different ball game.

For example, once an inspector listed that the french doors leading to the back yard swung out and therefore the hinges were on the outside of the house which presented a security threat because anyone could knock the pin out and take the door of the hinge to break in the house.  He suggested on the home inspection that we replace these french doors with doors that swing in to avoid the security issue.  After the bank saw the home inspection they conditioned for us to change the french doors out (over $1000.00 expense).  But, the inspector didn't realize we had installed security hinges on the doors which you can't knock the pin out from the exterior but only when the door is opened from the inside so there was no security threat above that of any other door.  We told the lender this and they requested the home inspector go re-inspect and update his report which the inspector wanted to charge a re-inspection fee for.  So along with the added delay we had the added expense of the inspector going out again all for nothing.

Hence my request to find a way avoid the bank seeing any inspection.

Craig Brouillette · Answer

@Anson Young Thanks, I like that idea!  And, maybe only 1 out o f every 4 deals gets done and under contract in less then 90 days (typically the facelift reno's) so it's not every one but any ideas to reduce the number of "hoops" we have to jump through is appreciated.

Wayne Brooks · Answer

The 90 day rule has nothing to do with having to "fix every little nit picky thing", that's an FHA requirement, period.  If you're doing a decent rehab, you shouldn't have many nit picky little things.  You can avoid the extra appraisal, and perhaps a number of potential buyers, by waiting the ninety days, your choice.

Anson Young · Answer

Most lenders are still stuck in this.  It went from "NO WE CANT TO IT IN UNDER 90 DAYS" to "we can do it, but we need you to jump through all these hoops".

Honestly, our projects have been taking 90-ish days anyways, but when its come up, we have terminated the existing contract and re-sign one on day 91.  Most lenders are OK with this practice, the only one lately that wasnt the buyer just got a new lender to get around not paying for the 2nd appraisal.

I've not heard of the home inspection piece though, our lenders do the 2nd appraisal and want detailed everything of what went into the house (reciepts, etc).  Which is also a pain in the ass.