FHA 90 Day Flip Rule 2015 - Exclusions?

22 Replies

I've read that there are some exceptions to the 90 day flip rule that was reinstated on January 1, 2015. I'm hoping I can get some clarification from some of the FHA/mortgage experts here.

We purchased an REO from HUD back in early Feb of 2015 and have renovated it and just put it up for sale. We have 2 offers, both with FHA borrowers. We never planned on making the property available to FHA borrowers, but now that we've got these 2 offers, I'm tempted. I've both read online and heard from mortgage brokers that if you purchase a HUD home, you can resell it within the 90 days to an FHA borrower. Here's a copy/paste of what I read:

"For those who utilize FHA financing, the 90 day restriction will begin on the 1st of the year. All executed contract before 11:59pm on Dec 31, 2014 will still be waived. After, the first of the year, there will be some exceptions:

1. Hud properties under REO

2. Sales by other federal agencies of REO properties

3. Sales of properties by non profit organizations approved for resale by HUD

4. Sales by state or federal financial institutions such as Fannie, Freddie or GSE

5. Sales of Hud properties where the President declares it a federal disaster area"

I was told earlier today, by a mortgage broker, that the HUD exemption is only when a borrower is buying a home from HUD using FHA financing.

So, can anyone tell me with certainty what the correct answer is?

You will want to read the rule yourself, but it seems like only when they buy a REO from HUD. You aren't selling a REO.

@Cheyenne Davis

These exceptions appear to apply to HUD homes which yours is not. Once you bought it from HUD it is no longer a HUD home it is owned by you

FHA closings are typically going to take 45 days to close anyway so that brings you to the middle of May anyway which appears to exceed the 90 days and make the rule moot

I would talk to each lender personally as I have seen 2 interpretations of the rule. One is the property cannot close before 90 days. However I have seen a few lenders iinterpet the rule as the contract cannot be executed prior to 90 days. So be sure to get clarification before excepting a contract

I was told today that the contract can't be executed prior to 90 days, which sounds ridiculous. That would mean you have to hold it for 4 1/2 months, when they clearly intended the deed to be recorded 90 days prior to being re transferred.

@Cheyenne Davis

Ask the buyers to find a different lender if that is their interpretation 

@Cheyenne Davis @Greg H. that lender is correct. It's a common misunderstanding. The actual language, I believe, is 90 days from settlement (not recording) until "the date of a contract that results in FHA financing"....not from recording to recording, or settlement to settlement, as we would like for it to be.

Wayne,

do you have a link to read the rule? I can't find seem to find it.

Hi @Cheyenne Davis , if you purchased a home as a flip and the end buyer will be using FHA financing, you will need to wait until the deed has seasoned for 90 days before executing a contract. However, what I typically do in this situation as the lender is have the buyer go ahead and submit a TBD application to get a full Underwriting approval right now. Then, once the 90 days has passed we get a contract and order an appraisal - that way we can close in about 2 weeks from execution of the contract.

@Cheyenne Davis

Not sure about your area, but don't be surprised if the underwriter asks you to provide anything from a list of updates to actual invoices for products purchased for your flip, depending on the increased value from when you purchased. 

Personally, I don't sell my flips to buyers using FHA / VA / USDA insured buyers...just too much aggravation. Cash or conventional is King for me.

Originally posted by @Guy Gimenez :

@Cheyenne Davis

Not sure about your area, but don't be surprised if the underwriter asks you to provide anything from a list of updates to actual invoices for products purchased for your flip, depending on the increased value from when you purchased. 

Personally, I don't sell my flips to buyers using FHA / VA / USDA insured buyers...just too much aggravation. Cash or conventional is King for me.

I'm curious Guy, do you find that there is less demand for your houses since you are eliminating a whole set of buyers.

For anyone else out there, I am curious of how investors are working around (or working with) this rule. I've had an opportunity come up for a nearly "paint and carpet" rehab in my area. The margin is not very big, but I could turn it around in probably 3-4 weeks to make 10/15k. My only concern is that at $150k ARV I feel like there will be a lot of FHA (first time, lower income/cash available) buyers looking in this neighborhood. If I have to hold it for 90 days before executing a contract (likely 4.5 months before I get paid), my rate of return plummets meanwhile my cash is tied up in this deal. Has anyone had a situation like this and found a reliable way to deal with it???

John

@John Shortridge

I just sold one where buyer had to go FHA but I refused to entertain their offer. So, buyers simply got their dad to co-sign and went conventional. In reality, I will almost never sell to FHA / VA / USDA buyers...the lenders / appraisers / underwriters seem to nitpick me to death and I won't play their games. Plus, I don't like the last minute surprise documents that come along with these government insured loans and I'm very document conscious. So, all in all, I just go with cash or conventional buyers.

John on all of my listings I started to market only to non FHA buyers and it hasn't decreased my showings or offers yet (have done on the last 3 houses.... Since the beginning of 2015). I highly encourage my potential buyers to use the 3% down conventional programs or even the 0% down program that one of our local credit unions offer. I was scared at first to limit my pool of buyers but if they want the house bad enough they will switch to one of these programs. So I don't even touch FHA buyers anymore. Just my findings so far in 2015.

Ok good advice! I think I'm gonna go for it. What's the worst that's gonna happen? Make a little less? Probably not. Lol

I try to avoid FHA buyers or ask them to get a pre-approval from a conventional lender. On my last flip it was a lower priced home at $150k and I had a first time buyer with conventional financing with a local bank and it was still only 5% down and way smoother than FHA. I actually turned down a slightly higher offer to avoid FHA (all of my offers were over asking anyway) FHA isn't the only low down payment program available.

We are in the process of purchasing a condo via auction for cash. Our intent was to expedite the process by paying cash, then our daughter will purchase the property from us immediately after our closing. She has been preapproved for FHA, Conventional, as well as 1st time Homebuyer. Now that our closing date is approaching, we reached out to the lender to find out when we can begin her loan application process. The answer was that she will have to wait 6 months AND get 2 appraisal's, etc. I'm confused, if she can finance via Convention financing, why must she wait 6 months? The lender just keeps repeating, "It's an investor rule that she wait 6 months". We are selling it to her for the exact dollar amount it is costing us to close on the property. It does not make any sense to me. Suggestions?

I am under the assumption that you can go FHA within the 90 days as long as you are not selling for more than a 20% increase over the purchase price plus improvements. Can someone tell me if that is a correct assumption

Patricia Hansen, Real Estate Agent in CA (#01723487)
Originally posted by @Alice Federenko :

We are in the process of purchasing a condo via auction for cash. Our intent was to expedite the process by paying cash, then our daughter will purchase the property from us immediately after our closing. She has been preapproved for FHA, Conventional, as well as 1st time Homebuyer. Now that our closing date is approaching, we reached out to the lender to find out when we can begin her loan application process. The answer was that she will have to wait 6 months AND get 2 appraisal's, etc. I'm confused, if she can finance via Convention financing, why must she wait 6 months? The lender just keeps repeating, "It's an investor rule that she wait 6 months". We are selling it to her for the exact dollar amount it is costing us to close on the property. It does not make any sense to me. Suggestions?

It is very typical for most lenders to require a seasoning from the original purchase. This is due to the amount of mortgage fraud and bad deals that have happened in the past.  Even if your daughter would have purchased the property herself with cash and then attempted to refinance it, she would have had to wait the seasoning period.  This is very standard.  I am doing a conventional refinance on a cash purchased property right now and the lender wanted closer to a year between purchase and loan.  The purpose behind this seasoning period is to prevent the banks from getting stuck with bad debts based on tricky financing, selling, or buying maneuvers.  

We completed the purchase and my daughter is in the process of financing it FHA. We have a commitment from the lender that she can bypass the waiting period as long as we sell it for our purchase price. Time will tell if it goes through that smoothly!!

i am a first time buyer in the hope program who needs to go Fha.  October 3rd made an offer on a home that was in process of being rehabbed.  They accepted offer, knowing I would be using Fha.  I have done everything required, paid off my car to lower my debt ratio, havent spent any monies, found insurer and paid for inspections and appraisals. I was told expect november 22 closing.  Got a call from underwriter on november 15 saying loan was approved pending the repairs the seller was to make... except the contract could not be legally entered into until after December 13th because the house was bought at auction for 60k and sold for 63k.  Both titles were recorded on 9/13/16.  It was dissapointing since I had to be out of my apartment already and staying in a weekly.  I had inquired if i could rent property from them in begining of November but property was not yet ready.  They verbally said waiting three weeks would be okay, they would not put it back on market or anything (likely because they were already fully aware of the 90 day rule) 

I was hopeful, since i had everything in place, the underwriter said process shouldnt take too long.

 After thanksgiving holiday checking to see if the dryer vent and killbox and been taken care of, the buyer could not be reached.  Finally reached their broker, who said the property was contingent with another buyer.  (Who also is fha financing) broker said the other party have a loophole around the 90 day rule.  Do not know what that is, except that maybe because it will be up in a week.

The seller has not even given me courtesy call that I need to resume my search.  Shouldn't i have some sort of recourse?  They seller falsely claimed they were not flipping houses.  When I looked up the guy who bought property at auction- he also provided several homes to rehab and flip to now cancelled tv show about flipping homes in vegas.  I am a naive low income first time homebuyer- (or I was planning to be!!!) Now I am stuck in a weekly-with my belongings in storage with local housing inventory tighter and more expensive- and really do not have money to pay for additional inspections, appraisals, rentals and storage.  Let alone a lawyer.  Any suggestions or advice?

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