The FHA flipping rule has changed this year. Since 2010 investors were able to buy a home, rehab it, and then re-sell the home to an FHA buyer as soon as they wished. But now in 2015 FHA has re-instituted their traditional 90-day rule so investors need to wait at least 90 days before selling their properties to an FHA buyer.
Is this a big deal or not for the housing market? I have 5 points below to consider and maybe share with clients when they ask. I’d love to hear your take too.
5 things to consider about FHA’s anti-flipping rule for 2015
1) An Inconvenience for Investors: This 90-day rule will be an inconvenience for investors since it limits the pool of existing buyers for their product. Some investors who are flipping at price ranges prime for FHA financing will definitely feel the impact of this rule.
2) Missed Opportunities: Some would-be FHA buyers will miss out on properties since investors will be more prone to accept a conventional buyer instead of waiting 90 days for FHA. In Sacramento, FHA financing has a higher volume at the lower end of the market under $200,000, so buyers at the bottom end could actually be more burdened by the rule.
3) The Reality of Less Cash: We no longer have a foreclosure epidemic both locally and nationally, which means there are fewer houses being flipped. Thus a rule like this carries far less impact in today’s market compared to the beginning of 2010 when it was absolutely beneficial. For reference, when FHA first eased their 90-day rule in 2010, bank-owned sales represented about 40% of the entire market in Sacramento, but now they’re only 5% of all sales.
4) It’s taking Longer to Sell Anyway: Realistically since many investors are going to take 30 to 60 days to flip a property, and then have a property on the market for 30+ days, this means some homes will still easily qualify for FHA financing. Agents will simply say in MLS something to the effect of, “90 day flip rule expires on such and such date”. For context, in November it took an average of 45 days to sell a house in Sacramento County and 50 days to sell in the region (though flips often sell more quickly since they are more marketable).
5) Boosting Conventional Loan Products: Lastly, removing FHA as an option within 90 days of acquisition will help steer some buyers to use conventional financing. Like I said two days ago when talking about trends to watch this year, we can expect to see some more creative financing options emerge as the market softens (and also as buyers need a different option to buy a quick flip without FHA financing).
I hope this was helpful. It’s so important to keep our finger on the pulse of the market so we can serve clients and make informed real estate decisions.
Questions: Do you think the 90-day flipping rule is a big deal or not? Anything else you’d like to add? I’d love to hear your take in the comments.
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I spoke to a group of house flippers this week. We talked about the issues that you noted. They were concerned about this rule because on many auction properties, they do not get the deed for 30 to 60 days, so the clock on the FHA rule has not started yet, but the cash outlay has. They did agree that with the very low inventory we have in our market, it is likely a conventional buyer will take the place of the FHA buyer when selling their rehabs. They did also agree that this will open the door for new loan products, especially if interest rates go up a bit. Thank you for being a great source of information in the appraisal world.
Thanks for your insight Gary. As you know, this post came about in light of a conversation we had the other day, so thank you too. If there is any way to get deeds recorded more quickly, that would be great. It really will hurt some investors, but in the end we just have to roll with the punches and adapt when the rules change. FHA will still be used widely, but on some flips conventional is going to win. At least this rule came at a time when DOM has increased as well as less REOs and short sales.
Hi Ryan,
I’ve always thought it was a dumb rule. Sorry to see it back actually! Great post!
I appreciate the honesty. 🙂 Many feel the same. For any onlookers, here is the original text from HUD when this rule was first enacted under the Bush administration in 2003: http://archives.hud.gov/news/2003/pr03-055.cfm
Any idea around the 90 day rule when a seller is under a contract for deed and is selling to another person? Land contract is not paid off so seller doesn’t have title to the house. Everything is set other than the snag with the 90 day rule. Btw, how was originally purchased on contract for deed 8 yrs ago.
Hi Emanuel. It’s hard to speak into your situation without fully understanding it. I’m not sure what a land contract is unless the land is owned separately from the house. That is not something common I encounter in my area as the land and house typically transfer together unless we’re looking at a situation where the land is actually not owned (a manufactured home park, for example). I might check in with a loan officer in your area about this to be certain. That would probably be your best move. Sorry I could not offer anything specific.
My son is buying a home from a couple with a FHA loan. The property was transferred to them Dec 12 2014. They are selling due to being relocated for job reasons. My son is getting a conventional loan. The original contract was signed Feb. 26, 2015 to purchase. The appraisal came in lower than the purchase price so a 2nd contract was signed March 19, 2015 for the lower selling price. Would these sellers be exempt from the flipping rule because they purchased before the flipping rule went back into effect? If not… shouldn’t his bank now use the contract from March 19th… which is now past the 90 days.
Hi Deborah. Those are great questions. Since the contract from your son was written after January 1, the flipping rule should apply if the seller purchased the house previously within 90 days of the contract date. If the contract from your son had been written prior to 11:59pm on December 31, 2014, the flipping rule would not apply. But since the flipping rule took place as of January 1, it does apply. I hope that makes sense. If you want to hear straight from FHA too, you can always reach out to 800-CALL-FHA. Best wishes. Thank you for checking in.
One more thing. Obviously now it is past 90 days, so one would think the bank would wave the green flag and not have issues with this property. My understanding is the contract date needs to be at least 90 days from the date of the previous purchase. Thus it would seem prudent for the bank to use the updated contract, but I’m not really on that side of the transaction. A loan officer would be best suited to answer that question.
My realtor didn’t know this rule, and my husband and I fell in love with a flipped house. I’m in a wheelchair and it’s hard finding a house that is accessible, so learning that we can’t even make an offer on this house is devestating. I’m a high school teacher and my husband is a mechanic, so we don’t make much money, and with the high price of renting, we’ll never be able to save up for a conventional loan, so now we’re stuck being renters.
Hi Deesha. Thank you for reaching out. Why can’t you make an offer? All that is standing between a buyer and seller is 90 days. In many cases a flipped property may have sold 90 days ago already. I suppose if it’s on the market prior to 90 days, then it does make sense that your offer will not be in motion yet. I hope you find something different or maybe connect with this seller once the 90 days is up. Best wishes.
I buy houses to renovate and resell. I closed on one last year about 70 days after purchase. Well this year, I bought one and got an offer about 10 days after the closing and renovations had started. We were all set to close in what would have been about 45 days. Then the buyer changed his financing to an FHA – at which time I found out about this rule. So, as eager as the buyer was to get into it and I was to sell it, it’s been sitting there complete and vacant for the past 2.5 months. Just passed 90 days and waiting to hear what the hold up is now. I think this rule is completely useless and is protecting no one in this situation.
Daniel, thanks for sharing your situation. It’s a bummer to hear of willing buyers not being able to use FHA financing in situations like this. This rule is meant to protect owners from quick “lipstick on a pig” type flips, but sometimes it thwarts home ownership from happening.
This rule is hurting my family right now…we are likely going to lose a wonderful home that we desperately want because we must go fha and are still 40 days out from the 90 so an offer/contract cant even be made yet. Problem is the investor keeps dropping the price and I just know we are going to lose it…so sad…Wish I knew a way around this rule!
I’m sorry to hear of the situation, Pam. Have you talked with the investor about your desire to offer? Did the investor hands-down say he/she would not wait? It is definitely a long shot to wait, though maybe something will happen so the house will still be available. I hope everything works out.
Pam. I got around the FHA loan issue by going through First Cal Mortgage. They were able to give me a regular loan with only 3% down. The interest rate is higher than what we were going to get with the FHA loan, and we couldn’t use any of the first time home buyer’s grants, but we knew this was the only way we could get our house. If you can’t switch loans, you should be able to put an offer on the house and have the closing date a day after the 90 days. Have your agent contact their agent. Ours was going to do that for us, but then they received 2 more offers that could close 30 days before we could, so we had to switch loans, so our offer was still the best one on the table.
I’m a flipper myself and with 85% of buyers using FHA. I’ve found a way around it!
Just have your buyers sign a lease agreement while you wait out the 90 period and meanwhile you as a seller can collect some rent and the buyer get to move into the house.
Of course there are some risks buy at least a solution for this rule.
Thanks for sharing, Judy. I appreciate hearing about your solution. That’s great if it’s been working for you.
I think the rule is ridiculous, why does the government care how fast or slow we make money? They certainly get their share. If it takes me 60 days to renovate then i should be able to sell! Any buyers that would like to purchase a home that is still in the 90 waiting period could possibly sign a contract dated on the 90th day and then the agent can submit on that day. This is my plan for our current flip.
Thanks for sharing your take, Karen. You’re not alone in wishing this was not a rule. This rule was birthed out of a reaction to bad flips, though just because 90 days happens does not mean the flip will be any good (which is the ironic part).
I’m hoping this rule won’t apply to someone who bought a house so cheap with cash, he has instant equity…then doesn’t touch it, leaves it in it’s very acceptable vintage condition, and puts it on the market for a profit…back around what it was really listed at when he got it for 20k less, and a FHA buyer can get it without waiting the 90 days…
Hi ML. It sounds like a great scenario for the seller to be able to turn the property around with instant equity, but for an FHA buyer this rule will apply.
I entered into a contract before the 90 days and put money into it per my realtor, the loan could not proceed because of this. Do i have legal ground to get my money back?
Hi Brandon. Thank you so much for reaching out. I suppose the issue might revolve around whose responsibility it was to know about the 90-day time period. Being that I’m not a lawyer, I really cannot give legal advice or feedback. I wish I could help. Somehow I hope this all works out. Best wishes.
I planning to buy a house in Torrance, CA. the seller bought the house as foreclosure in Oct 2015 , fix it and put in the marke april 2016, is this rule apply???
Hi John. Thanks for reaching out. The rules applies for any property that is being considered for an FHA loan. As long as this house sale recorded in December 2015, it seems the 90-day rule would no longer apply since more than 90 days has elapsed. To be sure, ask your loan officer since an experienced loan officer can double-check for you. I would give the most weight to what your loan officer says. Best wishes.
To clarify my statement: the house close escrow by the seller on Feb 26/2016 and put it back in the market by april 2016
Hi John, that doesn’t sound like 90 days to me since it’s necessary to see 90 days between buying and the contract date. Basic math seems to rule this one out, though make sure you touch base with your loan officer still. Thanks.
Put earnest deposit on home in early october 2016. Paid out of pocket for inspections and appraisals. First time home buyer in hope program, originally told should be in by nov 22. Came back from the underwriter what needed to be taken care of by the seller- vent for dryer etc. but for fha it had been bought at auction and sold same day to current owner on 9/13/16 and was in process of rehab. When underwriter noticed flip- already November 9th. fell out of escrow until the 12/13/16 date and repairs were still underway. 8 days to go, and just told the seller has not been answering calls and is now in escrow with another buyer!!! Can they do that?
Hi Raine. Thank you for reaching out. I’m sorry to hear about your situation. If you fell out of contract, I am not aware of any reason why the seller could not be in contract with someone else. If you were still in contract though, something doesn’t sound right. I am not an attorney though, so I cannot really say whether something illegal was done. I wish there was a better answer I could give you.
I live in Florida and purchased a flipped home for 144,000. The asking price was 149,000 but appraisal came in at 144,000. A week AFTER closing, the bank called saying they needed my help to let an appraiser come in for another appraisal as per the 90 day flip rule. I received a copy of second appraisal and it was 120,000! No house in this neighborhood is asking above 125,000 and I fear my house is not worth what we owe. Been in contact with bank and getting no where. Do I have any legal recourse?
Hi Sheri. Thank you for the comment. I’m not sure what is happening here as there are not usually two appraisals for a 90-day flip. I don’t understand why the bank would come back in to do another appraisal after you were already moved in unless it was a new appraisal for a refinance (or maybe part of an FHA 203K loan somehow). That is really surprising though if the value was that different. I’m not a lawyer, so I really can’t say if there is any legal recourse. Have you asked your loan officer or real estate agent about this? I would start there to ask questions. I would ask the loan officer to help you understand how there could be such a difference. Moreover, if value really was at $120,000, how is it the first property appraised that high and why would the lender do a loan on the property if value was clearly lower? I would ask the buyer’s agent if there was really support for the value at $144,000. I’d just be curious to see what the agent said because maybe the second appraisal is simply low. The market could have changed between the time the first appraisal was done and the second one if the first one was done quite a while ago (as sometimes happens during certain transactions where a property is in contract for a year or more). Granted, that would be a substantial decline in value in a short period of time if not much time had elapsed between the two reports. I’m just saying theoretically maybe the market was not exactly the same between the two appraisals. Best wishes.
Ryans,
My flip would be over 90 days since I purchased flip house and it is a conventional mortgage. Lender is applying 90 day flip rule, which would not be a problem, except I bought on courthouse steps and did not know I was responsible to record it in probate. It’s only been 3 days since I recorded it, but closing is in two weeks, no where near 90 days. Do conventional lenders do less than 90 day loans? Lender is saying from recorded date, not purchase date.
Hi Joe. Thank you for reaching out. I’m sorry to hear about your situation. I am not on the lender’s side of things when these decisions are made, so it’s hard to say what they do all the time. I have definitely seen them take a staunch approach though and pay the most attention to when the property was recorded. I might encourage you to ask a few local loan officers what they think so they can lend some insight your way. Best wishes.
Hello, we bought a 2nd home going Conventional (it wasn’t purchased as investment) in a beach area 2 weeks ago, it needs some TLC, but its not a major renovation. We are now thinking that we can sell it and make a profit instead of listing it as an AirB&B vacation home. Is there any waiting periods on selling this with in the next 40 days? We purchased it for 445 and once we are done with the upgrades we can sell it for about 600.
Hi A Lopez. Thanks for reaching out. I have not heard of any conventional loan restrictions. I am not aware of any sort of “90 day rule” for conventional, that is. I might recommend checking in with a loan officer to be sure of course. Just remember if you sell quickly after acquiring, you’re probably going to have buyers, underwriters, appraisers, and home inspectors looking very closely at the property. The appraiser will definitely discuss the previous sale to help explain why there is such a big difference in price / value since the original purchase. Best wishes.