FHA 90-Day Flip Rule Suspended: Lenders Hesitant To Change


If you’re a real estate scavenger, who likes to buy foreclosure properties at a deep discount and “flip” them to retail home buyers, the FHA anti-flipping rule has always been a thorn in your side.  Come Monday, February 1, 2010,  HUD has agreed to suspend that prohibition for a period of 12 months.

123flip.com reports that there are certain guidelines which lenders are directed to follow:

1. All transactions must be arms-length, meaning that there must not appear to be any impropriety taking place between buyer and seller. This requirement also indicates that any prior flipping activity on the home in the previous 12 months may be a red flag to the lender.

2. In cases where the sale price exceeds the previous purchase price by more than 20%, the lender will be required to take extra steps to ensure the sale is legitimate. This includes a second appraisal and a full FHA inspection.

I think this is much ado about nothing. Over the past nine months, lenders have implemented the 90-day flip rule for all loan types,  including conventional and VA loans.  While there were no agency prohibitions other than HUD, lenders have determined that the 90-day seasoning rule, for property “flips”, was a good practice to make standard for every loan they make.

We can argue about the merits of that policy adoption until the cows come home to roost but it is what it is.  My best guess is that while HUD will insure loans, for properties sold in less than 90 days from when they were purchased, lenders still won’t make the loans.

What does that mean to you?

If you purchase a property that looks like a good flip opportunity, you should be careful to not enter into a residential  purchase agreement (RPA),  from an enthusiastic buyer, for at least 91-days from the date the deed was recorded.  I’m certain there will be instances where certain lenders will follow the HUD policy to the letter of the law but for now, I’d enter every potential flip planning for a minimum 90-day holding period before you market the property.

I hope I’m wrong.

PS:  Don’t take short cuts when executing an RPA.  I’ve seen underwriters kick deals where the offer was dated within the 90-day period but not accepted until the 97th day.  Take the time to rewrite the RPA to reflect the proper holding time.

About Author

Brian Brady is a 22-year veteran of the financial services industry with the last 15 years in residential lending. He lives in Del Mar, CA, with his wife and daughter, and is active in the National Association of Mortgage Brokers, Knights of Columbus, and Chamber of Commerce.


  1. well thanks for the article but I certainly think you’re steering people in the wrong direction by telling them to plan on holding the property for 90 days and not plan on selling during that time period.

    It may be in ‘Your Experience’ that so and so has happened but certainly NOT in all camps. I get a property sold before I even buy when I’m flipping short sales. When these are conventional loan buyers, we make sure their lender is not going to have any seasoning issues when it comes to lending, very seldom does that happen. It certainly doesn’t mean I’m going to plan on holding properties for 90 days!

    As far as this new lift of the 90 days rule, I certainly see an increaed of buyers that not only I can sell to but many of ‘flippers’ can sell to.

    For the record, I think your article should not have been writtend and should be deleted.

  2. Nick, Whats wrong with being cautious? The whole point of doing a flip is to have an end buyer. But for a newbie Investors out there the advice is good enough for individuals who plan to have a plan B. The part that had real value to me was a purchase agreement when appropriate. I guess the author was merely stating that we can not trust lenders to change so quickly. Only time will tell.

  3. This is probably going to go both ways. I would imagine some lenders will continue with overlays despite the 1 year suspend on the rule. As an investor who was an underwriter, the best thing to do is understand if your lending sources are going to work with the suspension or ignore it. My thoughts = lender by lender. I’m planning on flipping many deals within 90 days.

  4. Nick,

    I think NJRE and Ryan understand the spirit in which I wrote this article. It’s my observation, not opinion, that more and more lenders are adopting the 90-day seasoning to be standard practice for all loans, not just FHA.

    My observation, not opinion, is that lenders believe the default rate is higher for buyers believe they overpaid for the property. That belief may be irrational but, as we all know, humans can be irrational especially when it comes to money. My observation, not opinion, is that because lenders see the higher default rate, within that “class” of property, they just shun those transactions until the seasoning.

    My opinion is that the higher default rate is minor and that lenders are running for the hills because they can make easy money during the TARP days; they are being rewarded to avoid ALL risk. My advice is to be aware of this lending trend when trying to “flip” a property. As I stated in my summation, I hope I’m wrong.
    .-= Brian Brady´s last blog .. =-.

  5. Brian is right that most, if not close to all, national and wholesale lenders have a 90 day seasoning requirement for all loans; and some of them will not lend at all if it is a straight flip without rehab to justify an increase in value. However, I believe some national lenders are already working on a program that will allow very short flips to FHA buyers – possibly in as short a time frame as same-day and allowing the use of transactional funding. If that happens, most wholesale lenders are likely to follow, although maybe not immediately, to not lose that market share – even if they do not like it. Details of this possible same-day program are not yet available but will be posted if it becomes a reality and are worth watching for. The FHA waiver is fairly clear that they are giving the green light. The wholesalers may be slow to adopt but would be foolish to not participate. And I applaud FHA (never thought I would utter those words). In a depressed market trying to restrict the market or transactions does nothing but slow any recovery.

  6. Hey Brian,
    Not saying you are wrong. I have been in wholesale and completely understand your point. They do not want to do flips, with the rationale dating back a few years to the illegal flips done multiple times with inflated appraisals, straw buyers, and non-arms length deals. I have heard of a couple national lenders focusing on being able to fund quick flips. Hopefully they can get their arms around it, and hopefully I am not being overly optimistic. If FNMA and Freddie would follow suite we would all live in a happy place. Not holding my breath on that one.

  7. Short comments come off as terse, especially when you’re a newcomer. Sorry about that, Ted.

    I really do hope that the lenders back off of these restrictions. Many times, the profits earned by the seller are because they are “scavenging” which is, finding gems amidst the rubble. “Scavengers” earn that money by buying correctly,polishing off the rough edges, and selling at market prices to someone who would never be able to buy that property in it former condition. Scavengers perform a VERY valuable role in any market.

    I think the lenders’ communal refusal to fund these loans, despite the HUD directive, is part of a larger “behind the scenes” directive from HUD. I think HUD has to say one thing in public (political pressures) while telling its mortgagees something differently in private.

    The way lending guidelines loosen (or stop contracting) is when one of the pack breaks free and makes money. Once that happens, the pack follows.

    Sorry again for what appeared to be a terse comment but was actually agreement with your statement

  8. No offense was taken at all. I hope the FHA waiver is NOT just window dressing and the behind the scenes to the lenders is a different discussion of “we really do not want to do these flips”. It would not be the first time – similiar to the administration encouraging banks to lend and regulators scouring over every deal and limiting asset classes with focus on real estate. Hopefully a couple big banks see the opportunity to lend to FHA buyers on short flips and much of the herd follows. Even if so I am sure it will not be a fast process.

  9. Pretty interesting article. Personally and professionally, I hope the authors opinion do not come into play. In my personal opinion, I feel that over time we all will see the changes that were intended by this FHA ruling.

    Thanks for all the different views. It really got me to thinking. Thanks!

  10. I believe James Ward is correct. I would not be jumping into conclusions. Let us think positive now. Continuous throwing of words will lead us to misunderstanding. Thanks!

  11. We’ve come up against the 90 day issue in the past in various markets that we invest in, but even with it we’ve done very well with our money and our investors’ money. Over the past year, we haven’t had any challenges in the Las Vegas market at all. We’ve been picking up properties at wholesale and flipping them in under 90 days (which is well below that average days on market “DOM” for the area as a whole). Our investors are making an incredible return on their investment, cash-on-cash returns are through the roof. So at the end of the day, we’re just happy to be making it work even when rulings try to throw a kink in the works. It would be nice if the government and lending institutions got out of the way and just allowed investors to help rejuvenate the market.

  12. I agree that it doesn’t make sense to jump to conclusions, this early in the game. Please note that I’m offering my observations, not opinion.

    Would those of you finding lenders who are not imposing the 90-day flip rule please post them here so that investors looking to flip property might have some resources?

  13. Cheif Denney, would you mind sharing lender names if you have found either portfolio lenders or conventional lenders that have been willing to waive the 90 day flip restriction? One I am aware of is a jumbo deal we have been working in Denver with USAA as the take-out. We all think of them for insurance but they also do mortgages. The restriction is that they service the military community, but it is a broad definition that includes some relatives and even ex-spouses. I am working another deal where Suntrust is a take-out within a few days of the REO purchase. Suntrust used to not have flip restrictions but went away from that policy 2-3 years ago. I am not clear yet whether this is an isolated branch or particular underwriter waiving due to a strong buyer. I have a third deal where my client is using the dreaded Bank of America. I do not have confirmation yet on this transaction, but have heard that BofA can have different parameters depending on branch or underwriter, and I suspect the strength of the buyer. If we could all share thoughts on portfolio lenders or those willing to waive the 90 day rule we would all benefit, likely without overlapping in the others territory. The primary benefit that makes BP so much more valuable versus all the other sites and forums is its members willingness to share and educate.

  14. I am doing two deals for clients. I just confirmed that BofA guidelines allow it at 80%, with some credit score requirements for the buyer. This branch will not fianlize underwriting or order the appraisal until the investor is in title and then will require the contract to be re-executed after title is recorded in the investors name. We are going to finance this purchase and assume a 14 day turn allowing for the appraisal time line. Anothe client is confirming Suntrust for a shorter timeframe and possibly same-day flip, although I have not yet confirmed the actual time line. I agree with Brian – if we all post here any knowledge of conventional or portfolio lenders who will waive the 90 day title seasoning we all win – and BP gets even more kudos.

  15. Hey Ted,

    I got some clarification from B of A (on twitter nonetheless) about their policies. I was told they would mirror the new HUD guidelines, for all of their channels: wholesale, retail, and correspondent. This means they are adhering to the limitations as set forth by HUD as well.

    They also communicated that the policy could change at any time but, for now, BofA looks like a go

  16. I was informed as recently as 2/10, that institutions are not lending to buyers such as myself (FHA), on homes that have been recently flipped. Into the inspection process, I learned this late yesterday. It is quite possible that I will lose the home, as the seller obviously is motivated to exit. The home has been inspected twice; it is an exceptional property… Any suggestions about what to do next or where to go?

  17. Michael, Because the waiver of the 90 day no-flip rule is very new many lenders are likely to be slow in implementing it, and some may not even over time. Typically I would NEVER recommend sending anyone to Bank of America for anything. But, based on Brians post it may be worth contacting them and maybe Wells Fargo. I am financing a flip right now for a client with BofA as the takeout, although it is not an FHA deal. I am also providing transactional funding on a same-day flip with the client using Suntrust. Again this deal is not an FHA loan. Some of these deals are likely happening because the borrower has a fairly substantial down payment, and it is just my impression but determinations seem to be subjective at times based on specific branches or underwriters. The end of this story is that it may take a fair amount of legwork, but there are lenders out there trying to get their arms around this. Do not take the initial response as this is very new – keep looking elsewhere.

  18. My head is hurting from reading all of your comments! I got approved for a conventional loan by US Bank in Feb 2011 and now it is June 2011, and they just informed me that they have an anti-flipping rule. I think it’s all A BUNCH OF CRAP!!!! I have a Fico score of 809, I own 2 houses OUT RIGHT, I own both of my cars and I have to hassle this!!! I’m going somewhere else. THERE IS SOMETHING WRONG WITH THIS PICTURE!!!

  19. Help! I need advice. Im buying a short sale next week and I need to resell it right away because I need the cash. The seller/lender just sent me papers to sign that says I agree not to resell the property within 90 days after closing. I have a buyer that is ready and I need to sell it within 60 days after I close.

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