Waiver Of The FHA 90-Day Rule

As of February 1, 2010, the FHA has waived their 90-Day Rule for Flipping Houses. The waiver was originally planned for 1 year, though it was extended for a second year, through February 2012.

What does this mean for investors, and specifically house flippers?

It means that investors now have the option to resell houses they purchase and renovate at any time after their purchase, without the requirement to wait 90 days prior to selling to an FHA buyer.

According to the official FHA documentation, there are a few (fairly obvious) requirements for these transactions that take place between 0 and 90 days after purchase (i.e., within the 90 day period):

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.

3. The waiver only applies to forward mortgages, and not to Home Equity Conversion Mortgages (HECM).

Unfortunately, despite the fact that the rule has been waived by the FHA, it can still be very difficult to find lenders/banks who are willing fund FHA loans within this 90 day period. While the FHA has said that it’s okay, many lenders/banks are being conservative and still forcing investors to wait the 90 days.

That said, if you are persistent, you can certainly find lenders who can get these transactions done. My best suggestion is to find a great mortgage broker who works with local or regional lenders (mid-sized banks); many of the regional banks are funding FHA loans within 90 days, and a great broker should be able to talk to many different underwriters to find one or two who can get this done.

In terms of the larger banks, I know that some Wells Fargo loan originators can get FHA loans done in less than 90 days (though some still can’t). And I’ve heard that SunTrust and Flagstar banks both allow FHA loans to be funded in less than 90 days.

Regardless of which lender you ultimately use, expect greater scrutiny of the deal than you normally would. This will likely include two appraisals instead of one (with the lower value being the one that’s used), and also expect that the underwriter will ask for a list of repairs that you completed on the home, as well as invoiced, contracts, receipts, etc, to verify that the work was actually done.

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