What is the seasoning rule with FHA loans?

[Mark C]

someone mentioned this to me but i did not fully understand it. I live in California

[Mike V.]

My experience with a flip I sold last month (the rules seem to change frequently) was this. Bought an REO, rehabbed it and had it back on the market and under contract after about 60 days. The buyers lender (FHA loan) required the contract date to be 91 days after the day that I bought the property so we waited and rewrote the contract on day 91. FHA also required two appraisals one of which I got stuck paying for.

[JR McGee]

HUD announced today January 15, 2010 that it is temporarily relaxing its 90 day seasoning rule which currently prohibits FHA loans for properties owned by the seller for less than 90 days. See the HUD press release for more details.

According to the press release, "The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities."

The new rule will take effect February 1, 2010 and will be in place for one year. To try to avoid the use of the FHA financing for flipping HUD is putting certain restrictions in place.

Hope this helps!

JR McGee

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[Ted Akers]

JR's response is a good one. One item to keep in mind is if the increase from your purchase price to your sell price exceeds 20% it will get additional scrutiny form the lender; to possibly include a second appraisal and a property inspection, but does not automatically kill the deal. If the property had been previously flipped or transferred in the prior twelve months it will probably kill the FHA financing. This is a tremendous opportunity to flip short sale and REO properties quickly to FHA buyers using very short term transactional funding rather than hard money.

[J Scott]

Also keep in mind that while HUD has lifted the 90-day restriction as of February 1, I have yet to find a single major lender who is willing to lend against FHA within that 90 day period.

In other words, HUD/FHA has lifted the restriction, but it's still very difficult (perhaps impossible) to find any lenders willing lend based on the lifted restriction.

Just something to keep in mind before you try to sell your property in less than 90 days. My recommendation is to find a lender who can do it, and make your buyers use that lender...

[Account Closed]

FHA waived the seasoning rule in mid-Jan however a loan would normally take 45 days to close. So if the lender started to process a FHA loan on Jan 16, with the seller having less than 90 days on title, the successful closing would take place sometime around the end or Feb or early March. With that said, now is probably too early to see that many lenders have experience or are already adjusted to the new rules.

Bring an article from HUD as you are visiting your local FHA lender. Let them know of your buy and sell plans so that they can feel more comfortable about what you are doing.

[James Ward]

Celine is correct here.
If you spend the time to completely go over the entire transaction, you have a better chance of a FHA Lender going along with it. Remember: the transaction MUST make sense!

We have been in contact with and are presently working with several FHA Lenders that are willing to allow these types of transactions.

[Ted Akers]

Good points by Celine and James. It makes sense that some lenders are going to see an opportunity. Some will be faster to work with, and some will be slow to respond or not comfortable with their liability to FHA and will not play.