FHA 90-Day Rule

March 29, 2009 · 9 comments

[Note: If this rule applies to your business, you probably want to read Part 2 of this post as well…it has more relevant information that you will likely find important.]

I’ve mentioned numerous times throughout this blog the FHA 90-Day Rule, but since I still get questions about it, I wanted to spend a post going into a bit more detail…

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” that I generally refer to 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.

If you’re a real estate flipper, these two rules are critical, especially in today’s market where many (most?) of the qualified buyers are using FHA loans. Make sure you work these restrictions into your business strategy, your schedules, and your contingency plans.

9 responses to “FHA 90-Day Rule”

  1. John Klahn says:

    I am running into both of these rules on a regular basis – the bulk of the buyers in my selling price range are FHA buyers.

    One thing to be very cognizant of is that the 90 day clock begins ticking based on the date that the county records the sale. I’ve heard from other investors that you can have a situation where the county records this date inaccurately and you could have even more days added to the clock.

  2. J Scott says:

    John –

    I didn’t realize that…thanks so much for the information!

  3. Jingle says:

    I’m running into double appraisals on all of my resales now. It has been this way for the last 9 months, and not all of my sales are over 100% (I wish…)


  4. J Scott says:

    John –

    I verified the info you provided, and posted a second part to this post (as this is important stuff):


    Thanks again!

  5. alan says:

    Can you contract the house in 60 days and close the contract in 92 days?

  6. J Scott says:

    Alan –

    Based on the specific wording in the FHA rules, no, you’re not allowed to even have the house under contract under day 91.

    That said, some lenders are more lax with that part of the rule, and will allow you to put the house under contract earlier. I would suggest talking to a few lenders BEFORE you plan to sell, to get an idea of how lenient each is with respect to the FHA rules. Then if you find one that is more lenient than the others, encourage your buyers to use that lender.

  7. Jeff says:

    What is the rationale for this absurd rule? Its only effect seems to be to place restrictions on potential home buyers, i.e., it penalizes buyers who cannot afford to pay a 20% down payment. Why should it matter when the seller bought the property – 90 years or 90 hours ago?

  8. J Scott says:

    Jeff –

    Agreed this is a horrible rule, for both homeowners and for rehabbers.

    The original intent of the rule was to reduce mortgage fraud and to ensure that buyers weren’t getting taken advantage of. During the real estate boom, unscrupulous flippers were making money hand-over-fist by buying properties and then reselling them for ridiculous profits hours later, by partnering with appraisers who were lying on the appraisals (inflating the property value). The flippers and the appraiser would then split the profits.

    The 90-day rule doesn’t keep this from happening, but makes it more difficult as the flipper must be able to carry the property for at least 90 days, making it less worthwhile to try to scam the lenders and other homebuyers.

    That said, it’s pretty sad that a few unscrupulous idiots had to ruin it for the rest of us…

  9. Alex says:

    This must be killing wholesalers…who I think are scams anyway but that another matter…

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