FHA 90-Day Rule
Below is the original text of my article on The FHA 90-Day Flipping Rule. While it is important to be familiar with the rule as it used to be in effect (in other words, makes sure you read the original text below), it’s also important to note that as of February 2010, FHA has waived this rule, allowing sellers (especially house flippers) to avoid the 90-Day Rule.
Here is more information on the: Waiver Of The FHA 90-Day Flipping Rule.
If you’re a house flipper, you will certainly want to be familiar with the “FHA 90-Day Rule,” more-so than any other housing regulation. It’s so important that I’m writing a long article about it, as opposed to just summing it up in a sentence or two…
First, here’s the text of the actual FHA regulation:
(b) Time restrictions on re-sales—(1) General. The eligibility of a property for a mortgage insured by FHA is dependent on the time that has elapsed between the date the seller acquired the property (based upon the date of settlement) and the date of execution of the sales contract that will result in the FHA mortgage insurance (the re-sale date). The mortgagee shall obtain documentation verifying compliance with the time restrictions described in this paragraph and must submit this documentation to HUD as part of the application for mortgage insurance, in accordance with §203.255(b).
(2) Re-sales occurring 90 days or less following acquisition. If the re-sale date is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage to be insured by FHA.
(3) Re-sales occurring between 91 days and 180 days following acquisition. (i) If the re-sale date is between 91 days and 180 days following acquisition by the seller, the property is generally eligible for a mortgage insured by FHA.
(ii) However, HUD will require that the mortgagee obtain additional documentation if the re-sale price is 100 percent over the purchase price. Such documentation must include an appraisal from another appraiser. The mortgagee may also document its loan file to support the increased value by establishing that the increased value results from the rehabilitation of the property.
As you can see, the 90-Day Rule is actually a set of rules regarding the resale of property to FHA buyers.
Here are the key points of this rule:
- A property is ineligible to be sold to an FHA buyer within the first 90 days after the most recent purchase. In other words, if I buy a house today, and want to resell it to a buyer using an FHA loan, I have to wait 90 days (91 actually) from today before I can resell the property to that buyer. As a house flipper, it should be clear why this rule can cause frustration — it generally takes about 4-5 weeks to rehab a house after I purchase it, but given this rule, I can’t resell the house to an FHA buyer for at least 8-9 after that; that means I either hold off putting the property on the market, or I risk finding a buyer but not being able to close for nearly two months.
- A property is eligible to be sold to an FHA buyer after 90 days, but any sale occurring before 180 days that is at least 100% over the purchase price is subject to additional appraisal scrutiny. In other words, if I buy a house today, and want to resell it a buyer using an FHA loan in 91-180 days for more than double what I bought it for, I will have to get two appraisals for the property. While this rule isn’t nearly as harmful as the first one — if I plan to sell it for more than double what I bought it for, hopefully it’s really worth that — it can still cause issues. Appraisals these days are all over the map, and anytime you need to rely on multiple appraisals to support your sale price, you run some risks of at least one of them coming in low. Additionally, the second appraisal takes time and money, often delaying these property closings.
Those are the general rules/guidelines that will affect you as a flipper, but there are some details that must be kept in mind as well:
FHA underwriting won’t consider the buyer’s loan unless the Purchase Contract, the Appraisal, and the Loan Application are dated at least 91 days from the date the current seller purchased the property
What this means specifically is that while a buyer can submit a letter of intent or a contract prior to the 90-day mark, for it to be considered by FHA underwriting, a new contract must be signed (and all loan preparations must be completed) after the 90-day mark.
Additionally, while not a formal requirement by the FHA, many FHA underwriters will stipulate that the 90 days doesn’t start the day the seller purchased the property, but instead, on the day the Warranty Deed was recorded. And in many places, the closing attorney legally has at least 60-90 days to send the Warranty Deed to the records office, and it can take a week or two after that before the deed actually gets recorded; therefore, it could be 90 days or more after the property is purchased before the FHA 90 day clock even starts ticking! Meaning it could be up to 6 months before you can sell the property to an FHA buyer!
While not all FHA underwriters will require the 90-day seasoning to start after the Warranty Deed is recorded, keep in mind that some will. A good flipper will control his/her deal from the outset, and part of controlling the deal is to control the lending process; make sure you know the rules that your buyer’s lender will be following to get the deal done, and if those rules don’t meet your basic requirements, insist that your buyers use a lender that you are willing to work with (and who is willing to work with you).
Regardless, if you’re a house flipper who targets FHA buyers, be aware of these rules, as they can severely impact your holding time and holding costs. At very least, make sure you work these restrictions into your business strategy, your schedules, and your contingency plans.
{ 1 trackback }
{ 39 comments… read them below or add one }
This is a great reference. Thank you. I haven’t listed a flip in a while and this assisted me. Thank you again…
THANK YOU!! I have been trying to understand the whole picture and your article has been the best so far.
I was told that the 90 day rule has been lifted. Do you have any knowledge of this??
Hector -
I’ve not heard anything about the 90-Day Rule being lifted (for anyone but banks and asset management companies). If this were the case, I imagine it would be BIG news in the investment world…but I don’t see it happening anytime soon, unfortunately…
My husband and I have a situation with a current FHA contract to purchase agreement. Does this rule apply in this situation: the home has been owned by my husband for over 20 years. We married several years ago, and we bought another home that we currently live in two years ago. He still owns the original house. In early September, we finally got around to putting my name on the deed along with his and added it to our real estate trust (we are both trustees). We spent 2 1/2 years fixing up the home, and it was finally ready to put on the market a couple of weeks ago. The first people that went through put in a contract to purchase. It was on the market only 2 days. The bank came back and said to stop everything because of the 90 day rule, but failed to check the transfer history before doing so. Our realtor stepped in, and proof of ownership was provided to the bank’s underwriters, and we have heard nothing. Would they consider that an “acquisition” by adding my name to the deed? There was no “sale.” Have you ever come across this? My realtor had not.
Clarification – the buyers are trying to get an FHA loan, not a conventional one. If I had known there was going to be an issue with this, we may not have agreed to sell it to them. There were other people interested. We were hoping to sell it so someone could close by Nov 30 and get their tax discount. Thank you in advance for any comment.
Hi PKB -
The FHA rule generally comes into play based strictly on the chain of title. If the title has not been transferred in the past 90 days (which in your case it has not), I would think that the FHA would not have an issue with it. That said, the underwriters make the rules, and if they have an issue with the transaction, you could run into problems.
You did the right thing by making the underwriter aware of the fact that title has not transferred; now it’s up to him to determine if that’s satisfactory. If you don’t hear back, have your broker get in touch directly with him; the broker should be able to contact him pretty easily.
If you still don’t get a satisfactory response, you have two options:
1. Call around to a couple other mortgage brokers and have them ask their underwriters if this is going to be a problem. When you find one that won’t impose the 90 Day Rule, have your buyers use that broker/lender instead;
2. Cut your buyers loose, and find another buyer who doesn’t require FHA financing.
Good luck! And please let me know how it goes…
Thank you for your response. We still have not heard back from our realtor regarding this. I talked with him yesterday, and it seems that the lender’s underwriters have not gotten back with the buyer or their agent with any information. We do not know if it was even looked at, or where we are in line. It is very frustrating. Their time limit for all inspections is finished today, and we have not received anything in writing from them as to their intentions, or to ask for an extension. Nothing has been inspected, and technically, they would lose their right to an inspection because of not having anything in writing given to us regarding this situation . Our realtor said they can look for another lender, and they may doing so. We just need to know one way or the other! If we do not hear anything by the end of today, my husband and I want to give them a definite time period in writing as to how much longer we will be willing to wait for an answer (we are thinking 7 days at the most). Our realtor is encouraging us to work with the buyers since he feels we will most likely come up against this again, mainly because the buyer market our home is targeting are the first time buyers. I know the people really want our home, and I’m sure they are just as frustrated. But, someone needs to get more proactive to get us an answer. It shouldn’t be all that complicated. Interestingly, their lender is my personal bank where I have all my accounts. Makes me think about switching
We also want the realtor to start showing the house again ASAP and let potential buyers know our home may be available again soon. The Nov. 30 deadline is fast approaching, and we do not want to be hung up on this if it’s going nowhere. I am going to take your advice and start making calls to other lenders (we used a broker two years ago when we bought our current home, so I’ll start there). I’ll let you know how it turns out. Thanks again!
PKB -
I would suggest that you take the initiative to start contacting a couple mortgage brokers and have them talk to their underwriters about the situation. If you ask three brokers to look into this, you’ll likely get info from three different underwriters with respect to whether the 90 day rule applies. If all three says it does, then all the rest probably will also. But, if even one says you don’t have to worry about the 90 day rule, well then you can just have your buyers use that broker/underwriter!
Remember, you have full control over your deals. If you don’t like your buyer’s lender, find a lender you do like, and make your buyers use that lender. If they really want the house (and it sounds like they do), switching to your lender really isn’t that big of a deal.
Thank you again for responding so quickly. I heard back from the realtor this afternoon. The bank absolutely will not give the loan because they stated it was because it was a “flipped house.” They refuse to believe county records showing otherwise. Also, they didn’t like the fact my husband had his ex wife on the deed from 9 YEARS AGO. They were divorced back then and he took her off the deed in early 2000. That was also an “issue” for them. My realtor is already working with another lender’s underwriters regarding this. The loan officer there was astounded and thought it may not be an issue. I also put a message in to my attorney who handled the deed transfer, and who also specializes in real estate law about this situation. We all feel there could be a discrimination issue since their lender told them we were property flippers when they had written proof otherwise. It’s one thing to state legally they can’t do the loan because FHA says no change in deed is eligible, even if married couples put their spouse on the property; it’s another thing to state we are doing something that isn’t true, mispresenting the truth to the buyers. This would give them the wrong impression about us, and could result in them not trusting us as sellers and lose the sale regardless.
I did contact one broker so far (one we used two years ago for our house), and they do not deal in FHA. I found out the buyers are not eligible for conventional when I spoke with the realtor. So…on to the next prospect! I can’t use my personal bank because it’s the same one that won’t give the loan! I do plan on having some words with them when I transfer all my accounts out soon, and tell them why.
I am also going to discuss having the attorney draw up an affidavit stating we are not flipping this property, and proof of ownership. It certainly can’t hurt at this point. So now, we wait once again to hear back from the new underwriter.
We all feel it’s very bizarre that the bank would keep insisting on something that just isn’t true. Apparently, their loan officer is very young and inexperienced and got intimidated with the real estate agents. Anyway, we hope the buyers will not let this fluster them too much and agree to move to another lender if one is willing to do the FHA loan.
Update: I found two brokerage companies in our area that said this is not an issue! They researched the situation and have lenders who will work with the buyers. They both agreed that something is really off, and that it is most likely something came up with the buyers not being qualified and they are putting it on us. In other words…..there is more to the story. FHA would not find this a problem. On the other side, two other major banks that both my realtor and I talked with said they will not bend. It’s very strange! Neither one could come up with written proof that FHA says that a deed change (as in our case) is included in the 90 day rule.
Now, hopefully, the buyers will give them a call right away now that they have the information. Otherwise, they need to tell us immediately if they do not want to proceed so we can get on with the sale of the house. I am also working with the attorney to draw up a letter or affidavit stating about our situation so it’s handy for lenders, either for these folks or any new ones if the house goes back on the market. Along with that will be the list of the brokers.
Everyone agreed in all the years of being in this line of work, they have never come up with this exact situation. I hope my posts can help anyone else if they find themselves in a similar scenario. Thank you for letting me vent.
PKB -
Congrats on finding the brokers who can get this done. I’ve certainly found in this business that there are things like this where you will get completely different answers based on who you ask…so asking around is always a good thing!
Good luck getting this closed!
Sorry to tell you, but there are no more funds for the Tax Credit. The entire funding of that program has been exhausted, unless Congress provides a new allocation and extends the program. Have your buyers write their Congressman for an extension of time.
Change of ownership has exemptions. They include: Transfer of title solely between husband and wife; transfer to a trust for the benefit of grantor or grantor’s spouse, to a trust revocable by the transferor, or to a trust from which the property reverts to the grantor within 12 years. All are exempt from change of ownership in accordance with Section 480.03 of the Federal Revenue and Taxation Code. In what State is your home located? I’m surprised that the underwriter has not been informed of their error. Every agent in California is aware of Change of Ownership exemptions, because it is addressed in every sale transaction.
I own a home that we have been trying to sell via an investor/short sale negotiator. Part of the process was to transfer title to the investor who in turn listed the home for sale while he negotiated the short sale with my mortgage-holder. The intent was to find a buyer (which we did), negotiate a short sale price with the bank (which we didn’t), and the investor would profit from the difference. There were absolutely no direct costs to me. Although we have a buyer under contract, the investor was unable to complete the transaction on the bank side and is turning the property back to me. I still have a buyer, but the problem I face now is that with the investor quit-claiming the property back to me, it appears that I might be facing the 90-day flipping rule. My (FHA) buyer has been very patient, for 5 months now, but I don’t know if he will wait out another 90 days.
Since the title transfers between myself and the investor occured with no actual purchase taking place, will the rules allow me to proceed with the sale to my buyer using FHA, or will I need to convince the buyer to wait another 3 months?
Jack -
This is going to be a decision that the underwriter for your buyer’s particular lender will have to make. Normally, if there is any transfer of title, the underwriter is going to be very conservative, and will generally required 90 days before he will allow a sale. But, if you can get in direct contact with the underwriter, and explain the situation, he may be willing to overlook the title transfer and allow the sale to go through prior to the 90 days.
My recommendation is to contact the buyer’s broker/lender directly, and explain the situation. Have the broker/lender get in contact with the underwriter, and take it from there.
Unfortunately, it’s probably a long-shot, but you may be able to make it work. Another option is to find a broker/lender yourself where you know the underwriter will allow this sale to take place, and then encourage your buyer to move to that broker/lender.
The good lesson here is that you should NEVER sign your title over to someone without having a very good reason for it. There’s no reason why the investor you were working with needed to be on title to negotiate a short-sale with the bank. In fact, by signing over the title, you were risking having your entire mortgage called due by the lender, which would have made it even more unlikely that a short-sale would be allowed. Why did the investor need to be on title to help you negotiate this?
Just wanted to know if you had any info on the 90 day rule on conventinal loans? It appears that my buyer cannot qualify because conventional now requires the same standards as FHA, meaning you cannot flip it within 90 days of being on title for more than 125% of what you paid for it. Is this bogus or a new rule just adopted. Nobody seems to know the answer.
Hey Liam -
I hadn’t heard that there are an restrictions on conventional loans (at least not through any major lenders) these days…
Did you happen to purchase the property as an REO through Fannie Mae? If so, Fannie Mae has restrictions on when you can resell the property and for how much. Basically, it’s similar to the FHA restriction, but on the *seller* side, not the *buyer* side.
If that’s not it, I really don’t know. I’ll ask around and see if anyone else I know has experienced this restriction on a purchase with a conventional loan.
Thanks for the quick reply. What I have heard and what some investors are running into is, if it is conventional but less than 20% is put down, banks won’t touch it for 90 days because the mortgage insurance carriers won’t insure it. I purchased it at an auction and did conventional financing putting 25% down and had no problems getting the loan. Now i am selling it for a lot more than my purchase price and that’s where i am running into difficulty. The appraisal came in higher than the sales price. It appears some lenders are imposing this rule even though it is not mandated by Fannie or Freddie. Each bank is making their own determination much to dismay of investors trying to make honest money based on the market value.
Recently my buyers wrote a contract for an FHA loan on a 1921 home that had been remodeled. The owners, one of which is the realtor, bought the house in April 09 at Sheriff’s sale. One of the owners is the main investor, meaning he was the money man. The other owner invested very little but is the realtor and designer and oversaw the contractors, etc. The problem is that the investor owner did not record the deed. When we turned in the contract, the title company saw the discrepancy and filed for the owners on Dec. 4th. The contract was written Nov. 14 of 09 and we were set to close Dec. 15th.
HUD underwriters are saying a big NO to closing the 15th.
I understand from the article above the text to say “ownership” and that some underwriters look at recording date. The deed was “executed” the 24th of April/09, but not recorded until 12/4/09.
Is your advice to keep talking to FHA underwriters until we find one that will do the loan now? Or should the buyers lease from the sellers and present a new offer 91 days after recording and close then.
I am the selling realtor and want to give my buyers the best advice possible. They were able to lock in an interest rate of 4.875 and don’t want to lose that. We thought about asking the sellers to buy a lock on their rate since it is their fault in not recording the deed.
What are your thoughts and ANY suggestions!
Thank you and respectfully,
Susan
Hi Susan -
I would recommend that your buyers try to find another broker/lender and a different FHA underwriter. I’ve noticed that about 50% of the underwriters will look at the recording date of the deed to determine the start of the 90 days, while the other 50% will go off the sale date (whatever is on the HUD). So, it sounds like you just got unlucky on the choice of underwriter.
If you call a couple brokers, they should be able to check with their underwriters on what rules they follow, so you can find a broker that you know can help *before* you make your buyers switch.
It’s very likely that the buyers will also be able to keep the locked interest rate, assuming the new broker/underwriter go off of the same FHA loan number (which was assigned when the loan file was first opened by FHA).
Good luck!
Thank you for your very prompt reply. I did indeed find another lender/who has an underwriter who uses the sale date. Thank you for answering the question about the locked rate. The new lender was able to use the FHA loan number which was originally assigned.
It looks like we will be good to go and close the first week of January instead of waiting the 91 days. My buyers are very very pleased.
I actually got so crazy with buyers, I just now saw your reply. I had contacted another lender and she has been able to serve my buyers very well, but it is really nice to see your answer. Further confirmation that the correct decision was made.
Thank you so much!
FHA 90 day anti-flip rule has just been lifted for 1 year, starting FEb. 1, 2010.
I’m looking at a home that is approx 40 days from being available for FHA but in 2 weeks that rule is lifted for a year.How soon before Feb 1st can I get things going.
I want to offer prior to that date to try and get the house.
Thanks.
Check out this web site concerning the 90 day “flip rule” being lifted. It is under certain conditions and only for about 12 months.
Hi Jan -
That’s what the link at the top of my article is related to…
This rule has been lifted effective February 1, 2010 for a period of 12 months. Great news for all investors AND FHA buyers! The process will need extra documentations…all on the sellers (flipper) side. FHA buyers really have this one easy! Should have a lot more purchase opportunities.
My father in law purchased an REO home in Jan of 2011, my husband is also the co deed holder on this home. It was done this way because the funds were available in cash, but now he wants to sell the home to us on land contract and says that he will be penalized if a loan is taken out on it with in the first year he had purchased it.. is this true? The contract he has had drawn up states that my husband and I be responsible for a set monthly payment, makes sense, in addition to that we are soley resposible for the property taxes and insurance, yet he is claiming the home on his taxes. I am refusing to invest money for improvements as well as investing in a new furnace or tax deductable appliance when I am not going to be able to claim any of this. I have yet to see this contract and have already arranged for my lawyer to review it. Nothing adds up on this and I am wondering if he and my husband, remind you the co deed holder, are not up to something that in the end leaves me screwed? Legit imput would be greatly appreciated.
Dawn -
Unfortunately, without more details, I’m not sure I can offer any good advice or opinion. In fact, even with additional details, it would likely take someone with legal expertise in contracts to determine whether what is going on is reasonable or not. Since you are having your attorney review the contract, it sounds like you’ll get good legal advice, which is certainly more than I can offer here.
Good luck!
I’m buying a house that was flipped, and got my loan approved with no points/fees, and rate locked at 4.875. Last week when seller (finally) provided the title, the lender rejected loan due to lack of seasoning. So I had to find a new lender, and now have to pay $2,000 to get the interest rate because seller didn’t know about seasoning requirement. The seller refuses to pay the $2000, but I still want the house. The seller is also a real estate agent. Do I have any recourse to require him to pay the extra cost due to his error (e.g., legally or by reporting him to his broker)? Thanks for any infomation/advice.
Hi Eileen -
First, I’m not an attorney, so there’s no guarantee my advice is what a legal professional would tell you…
That said, unfortunately I don’t think you have any recourse. The seller doesn’t have any legal obligation to ensure that you or your lender is informed about the short period of time he’s held the property. Though, if he does this for a living (buying, rehabbing and selling), he should be aware of the fact that not every lender can get this done, and also verify that your lender can get it done. It’s in his best interest as well as yours, as obviously he wants to sell the house as badly as you want to buy it.
If anything, this is the fault of your mortgage broker, who should have requested information from the seller early on in the process; once the broker found out that the seller owned the property for less than 90 days, he could have asked the underwriter if there would be any issues. Unfortunately, because the broker didn’t ask the question, I assume the situation didn’t get revealed until the underwriter started looking at the packet of data, which was late in the process.
So, in this case, while the seller was remiss in leaving this information out, it was the mortgage broker who made the big mistake, as he certainly should have known the FHA regulations and should have verified that the sale met the regulations.
As for next steps, I would try to reach a compromise with the seller, perhaps where you split the $2000 loss in half and each come up with an extra $1000. If he’s not willing to do this, then it’s up to you to determine how badly you want the house, and whether it is worth the extra cost. While I don’t believe you have any legal recourse against the seller because he’s an agent, it’s worth mentioning to him that as an agent, he has a reputation to uphold, and by forcing to you eat this cost due to his omission of information, he’s putting his reputation at risk.
If he’s smart, he’ll realize that the negative ramification of potentially having you post this story all over the internet (with him and his brokerage mentioned) isn’t worth just coming up with an additional $1000-2000 to help you out.
Just my opinion…
Thanks very much for the advice, I’m going to ask him to pay half. I’ll let you know how it goes.
It was a great suggestion, but the seller won’t help so I have to pay all of the costs, plus fee for a new appraisal. Thanks for the advice though
where on the web can I find all rules to qualify a home for FHA, Fanny Mae ect… for sellers?
Me and my husband recently found a home we’d like to purchase. Upon doing some research to come up with a bid we found the house was just purcharsed by the seller on April 13. Can I get conventional fininancing this soon after the seller purchased the property?
Lindsay -
Most conventional lenders don’t have any “seasoning” period these days, so you shouldn’t have any problems getting a conventional loan (as opposed to an FHA loan) on the property. That said, I would talk to your mortgage broker and ask him/her directly, as every lender is going to have their own special rules…
Hi J Scott
Im a Realtor in PA, I Just read an article that seems to imply that the 90 Day Flipping restriction for HUD properties has been waived for the 2011 yr. The link is below….Tell me if you understand it as i do.
http://fha.realestatezing.com/anti-flipping.html
Hi J,
If you take a look at the top of this article, you’ll see a link to my post about this rule being waived — back in February of 2010. It was waived again in January of 2011. So yes, you can now flip houses in less than 90 days to FHA buyers…
According to Wells Fargo, there is a flip rule for conventional loans. We are in the process of a renovation/conventional loan and found about this the hard way. Less than a year and more than 15% and we have to pay for a second appraisal. Our loan officer never mentioned this and neither did our real estate agent. We really want the house so we paid for it. Just wanted to let others know.