Houses Done In 2 Months- No FHA Loans Until Own For 3... What Do You Do?

Question

Hey-

What are you guys doing with this terrible anti flipping rule being back into effect this year?

My houses are generally done in 2 months and now I'm in the awkward position of having to decide whether to:

A- list them now, letting agents know won't qualify for FHA financing, and hope I can get conventional/VA buyer

B- have them sit vacant for 3-4 weeks and then list them when can qualify for FHA financing

I'll also mention these are lower price point properties (under $300k list) so the vast majority of buyers are in fact FHA.

What are you guys doing with this?  Sigh

Jon

Wayne Brooks · Answer

@Jonathan C. I'd simply advertise with no restrictions.  If you get an FHA offer don't accept it then. Do a very thorough check into their preapproval (require the DU report Fromm heir lenders and verify they submitted actual tax returns) and let them know your restrictive date.  They'll either wait, or not.

@J  Scott I was thinking about this. "executed contract" clause while I was doing my girly aerobics class.  I get that some contracts are considered "executed" when the elements of the contract are actually performed.  But, I believe the FHA is referring to the signing of the contract, since they use the term "settlement" for the initial purchase, and "execution of the sales contract" for the subsequent sale.  Seems to me if they actually meant  90 days from "settlement to settlement", they would have used that term.  Oh well, it'd be boring if it was simple, right?

Wayne Brooks · Answer

I've always viewed the "execution of a contract" as the signing by both parties, as opposed to the "performance" of a contract, which in contracting would be performing the contracted work, and in real estate sales, the closing get/settlement.

Greg H. · Answer

@J  Scott

This was discussed on another thread yesterday and a couple of people were adamant that it is 90 days until comtrAct can be executed. I am seeing it both ways as I just closed one on day 92.  Are seeing a variance among lenders ?

When I receive an FHA offer, I always call their lender's underwriter and verify their policy.

J Scott · Answer

Get them under contract now. Will take at least a month to close anyway.  Close on day 91.

Jonathan C. · Answer

So assuming many people have the same experience as me where vast majority of lenders/underwriters are interpreting FHA 90 day flip rule end date as the date contract is signed as opposed to date contract is executed (settlement date), how are people handling this when they're done with houses sub 90 days in markets with mainly FHA buyers?

I'm in the unfortunate position on 2 houses right now of a) waiting 2-4 weeks with a vacant house and paying holding costs until 90 days are up or b) marketing before 90 days are up and indicating in agent comments on MLS (or somewhere else on listing) needs to be conventional loan, thereby limiting the pool of potential buyers and also, by definition, likely decreasing price and/or increasing days on market.

Any rehabbers selling to FHA buyers and completing projects sub 90 days- interested to hear what you're doing.

Thanks, Jon

J Scott · Answer

Yeah, most people use the term "executed" incorrectly.  Ask any lawyer, and they'll differentiate between "executory" and "executed"...most real estate agents and laypeople don't.  But, legally speaking, "executed contract" has a very specific meaning.

But, I'm not a lawyer, and I could certainly be wrong...though I've had this discussion with a closing attorney and his thoughts are what I said above.

Wayne Brooks · Answer

@J  Scott  I have never seen "execution of a contract" to mean anything other the signing of the contract between both parties, not the closing/settlement.  You'll notice the rule refers to the "settlement" date of the seller, and the "date of execution of the sales contract that will result in FHA mortgage insurance (the re-sale date)".  I'm pretty sure they're referring to the Signing of a sales contract, not the later closing/settlement.

Wayne Brooks · Answer

@J  Scott

• http://www.ecfr.gov/cgi-bin/text-idx?rgn=div8&node...

Paragraph b.

J Scott · Answer

Wayne -

Where are you seeing that verbiage (that would certainly clarify things)?  Here is the text of the regulation as I've been able to find:

http://www.ecfr.gov/cgi-bin/text-idx?rgn=div8&node...

Notice that (b) says the following (emphasis mine):

Specifically, it calls the re-sale date the "date of execution of the sales contract."  Keep in mind that, in legal terms, the "execution" of a contract is the day performance is complete -- for a real estate contract, that's the date of settlement, typically.  A contract that hasn't yet been fully performed is "executory," and this says nothing about executory sales contracts or contract signing.

I've talked to a couple lenders about this, and they agree that these days there is a lot of push back from underwriters on getting the contract signed before 90 days, but I got one closed on day 92 a couple weeks ago (actually, someone I'm mentoring did).  So, either that underwriter messed up (it's quite possible) or other lenders are just imposing an overlay.

I guess my best answer at this point is, I don't know.  Luckily, I don't run into too many FHA buyers these days, so I haven't had to worry about it.  If I did have an FHA buyer, I'd probably recommend they switch to conventional to be safe, or I would expect that, worst case, I'd be waiting 90 days to (re-)sign the contract.

Wayne Brooks · Answer

@J  Scott I thought the same thing, that my lender had their own overlay.  I went to HUD site, and it says "contract entered into that results in the sale" must be more 90 days from initial settlement ( not recording).  Not sure why the discrepancies.