Real Estate: HUD to Waive 90-Day Flip Rule

Posted on | January 20, 2010 |

Content provided by Steve Trang from Occasio Realty

The Department of Housing and Urban Development (HUD) made a major announcement last Friday.  Effective February 1, 2010, HUD will waive the 90-day flip rule for FHA loans for one year.  Before I explain the implications of the change in the 90-day flip rule, let’s understand why the rule existed in the first place.

FHA loans are insured by the federal government.  As such, they place multiple measures to protect the prospective home buyer.  There are many rules in place when using an FHA loan to purchase a home, and that is why many banks are less willing to sell their homes to FHA buyers.  One of the most important safeguards is the 90-day flipping rule.

That means that any property that changed hands within the last 90 days cannot be resold to an FHA buyer.  For example, if John (investor) buys a foreclosure on January 1, 2010, then he cannot even accept a contract from Bill (FHA buyer) until April 1, 2010.  In the mean time, John can accept any cash or conventional offer from anybody else.  The 90-day period is referred to as the seasoning period.  This safeguard was put in place to make sure than an unsuspecting homebuyer was not tricked into paying too much for a home.

Waiving the seasoning period will help FHA buyers, investors, and the community in general.  FHA buyers benefit because a much wider array of homes are available to them for purchase.  Some of the best deals for first time home buyers are flip properties from investors, especially if they do not have a lot of cash for fixing the property up.  Investors are able to buy properties at deep discounts through foreclosures and short sale, and they often sell them at market value with new carpeting, tile, counters, etc.  These are great deals that are often unavailable to FHA buyers due to the 90-day rule.  Now, they have access to the same properties as conventional and cash buyers.

Investors are excited about this because it reduces their hold time.  They can sell the property much quicker due to much higher demand from a wider customer base.  The reduced hold time increases their profit since they often borrow money at 15-18% interest rate.  I know many investors are excited to jump on these opportunities, and as a result, this increases demand.

The community benefits because we can absorb inventory much quicker.  In a sense, HUD is temporarily increasing demand while supply is high.  Hopefully by next year, inventory levels will be back to normal.  Even today, inventory is significantly better than the start of 2009.

There are some requirements to participate in this program:

-All transactions need to be arms-length.  That means you can’t buy from a friend or family member.

-Markup cannot exceed 20%.  Exceptions can be made in specific circumstances.

This is a great program, and Arizona will greatly benefit from it.  Many of my clients can’t wait for February to roll around.  To read more about this program, you can click here for the HUD report.

Steve Trang from Occasio Realty is a licensed Realtor that sellsTempe Real Estate and helps distressed homeowners short sale their property. Visit http://arizonarealestatehome.com to learn more.

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