FHA Flipping Rule

7 Replies

I came across this...

Does this have any impact on us? And can someone explain the rule in basic english please?

I'm guessing you mean having an end buyer using FHA financing, to buy a flip. Not really a big issue, for a rehab. If within 90 days of the rehabber's purchase, then 2 appraisals required, one paid for by the rehabber, and verification of improvements-before and after pics., invoices, etc.-- may be required.

@J Scott you live like 5 minutes from my house. 

@Paulie Moore   yeah I just had a broker drop the darn 90day addendum on my after we had all agreed to the price / terms... then this came via email.  I was ...upset... So my expected 3-4 week rehab just turned into a LONG 90day process.

@J Scott does that 90 day start from settlement or recording of the deed (which we all knows can take 14-25 days)??

Originally posted by @David Kosiorek:

@J Scott does that 90 day start from settlement or recording of the deed (which we all knows can take 14-25 days)??

There are two 90 day restrictions:

1. The FHA restriction that you're talking about above. This is the restriction that says that your buyer won't be allowed to get an FHA loan until you've owned the property for 90 days. As mentioned earlier, this restriction has been waived by FHA since 2010, so you now can legally resell to an FHA buyer. Some lenders haven't changed their requirements, and still require 90 days hold, but most have moved over to the new requirements. For those lenders who still require the 90 days, some will work off the purchase date and some will work off the recording date. In general, you should try to find a lender who has no 90 day restriction on an FHA resale.

2. Fannie Mae and Freddie Mac often have 90 day hold restrictions when you buy an REO from them. It says that you can't resell the property for at least 90 days from the time you purchase it for more than 120% of your purchase price. This is from the time of purchase, and is a deed restriction (so it's actually recorded on the deed). Some short sale sellers will have resale restrictions as well.

Before I even negotiate a VA,FHA or USDA offer I will always talk to their lender. As @J Scott mentioned, lender have different variations of the "90 Day Rule". Some will allow the property to be under contract before day 90, some will not allow the executed contract date to be within 90 days.  Some will asked for you the owner to provide a list of improvement and your purchase price( Hate that one !). Some make it up as they go along !!.  

Since I primarily by HUDS, a lot of my properties I have bought and renovated and then resell BELOW the initial HUD appraised value. My argument has always been that an FHA appraisal is supposed to stick with the property for 180 days, why should I have to wait 90 days since I am reselling below that value. But........logical arguments don't seem to work in this business ! Lol

So, always talk to the lender so you can have an idea of the timeline and requirements for a smoother transaction