First, thanks to the 40 or so people who sent me email about the pending changes to the FHA 90-Day Flipping Rules. And I mean that with all sincerity — I truly appreciate when my readers and colleagues keep me updated on what’s going on in the real estate world. In fact, I was traveling all last week, so without these updates, I probably still wouldn’t have known the big news…
As of February 1, 2010, the FHA will be waiving their 90-Day Rule for flipping houses. The waiver is planned for 1 year, though that can obviously change at any time.
This means that investors will 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:
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).
The waiver of this rule will most likely have a huge impact on the real estate investing community short term. I’m certainly looking forward to the positive impact it will have on our business.