I wrote earlier in the week about the FHA 90-Day Rule, and how it can affect house flippers. Well, there is some additional info that I didn’t include in that post that is very relevant…the reason I didn’t include this in the first post is that I wasn’t aware of it until today.
Here are the major relevant point that flippers should keep in mind:
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 was recorded on the Warranty Deed.
This brings up a few interesting implications:
- 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;
- The 90 days doesn’t start the day the seller purchased the property, but instead, on the day the Warranty Deed was recorded;
- 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!
I have had lenders who have gotten around these rules in the past, but I don’t know if it was knowingly or unknowingly. I called a couple lenders today to verify the accuracy of this information, and they all said that this is their understanding as well.
So, 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.