Real Estate Blog - House Flippers Beware-Do You Know About the FHA 90 Day Rule?

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House Flippers Beware-Do You Know About the FHA 90 Day Rule?

You just got a great deal on a foreclosure or short sale property in Prince William County. You brought in your crew to renovate and now it is ready to go back on the market. But who can you sell it to?

Recently my buyers have encountered two properties in Woodbridge that were pristine and within their price range. They were excited and ready to write an offer. However both properties were flips and didn't qualify for FHA financing.

Since a large percentage of buyers in our area, especially at the lower price points are using FHA loans those newly purchased and renovated properties are not available for them to buy. When you look back at the month of March of the 750 properties sold in Prince William County 257 of them were purchased with FHA loans. So close to 1/3 of the potential buyer pool in the county can not purchase a flip.

Even though the FHA changed the rules last fall to provide relief for lenders handling foreclosures it does not cover individual "flippers" who purchase properties to rehab. In an area such as Woodbridge this can be a surprise to both the investors, listing agents and prospective buyers.

As an investor it is something that you need to consider before you decide that it will be easy to make a quick buck on a flip. Your pool of prospective buyers may be a bit smaller than you thought.

Posted by Cindy Jones-Northern Virginia Real Estate & Military Relocation Services on 04/30/2009 08:14 AM

Comments (10)

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10 Comments on House Flippers Beware-Do You Know About the FHA 90 Day Rule?

APR

Typical government solution to a problem.

If you have a pain in your head, put a poultice on your butt.

Cindy,

Good job on getting the word out on this one "tiny" little rule!

I have experienced in the past that a lot of "flippers" don't have all the details that they need in order to do a good flip. Sometimes they don't KNOW about these details UNTIL after they have purchased and made all of these plans!

Congrats to your company for being #1 !

Thanks for this post...but what is the 90day rule? I'm assuming that it means the sellers have to have owned the home for 90 days before they can buy with an FHA loan? I'll look into this.

We usualy have them waiting on day 91. This is a stupid rule in todays world.

The 90 day rule is part of the cost to carry and should be factored into any investor's profitability model. We have not had a problem with this in MA as it usually takes that much time to get the home back into salable condition after renovations.

Now, please don't shoot the messenger on this - but the more flips we have out there, the harder it is for us to obtain financing from non-conforming sources. Yes, some borrowers don't qualify for loans under the FHA or FNMA guidelines (i.e. borrowing on a condominium less than 51% owner occupied) and need these institutional lenders to underwrite their loans. Also, the more flips, the shorter the duration (i.e. return on investment) for the investors of the loan program and therfore they need to supplement this with additional up front (origination) fees. Nothing is free in this world.

This is very important and we just ran into the same issue locally.

your friend in Charlottesville Virginia!

This is easy to handle as an investor. First off, educated investors have a list of buyers ready to go when the 90 day period is up. Second, there is no mortgage payment the first month. Third, again an educated investor would have enough capital and financing available for the 90 day period.

When you run it as a business, you do not look at it as a quick buck. There is a process that needs to happen and we understand this.

Cindy

Thank you for the heads up on the FHA financing.

Good luck and success.

Lou Ludwig

Hi Cindy...You've provided very important information to investors and possibly to some agents as well.

Kate

MAY

Good information, Cindy. I know the rules were put in place for a reason, but this seems like a good time to temporarily suspend them, doesn't it?

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