Navigating the FHA 90 day rule when flipping

[Luis A.]

I have my latest flip on the market right now and since I have owned it for less than 90 days it is subject to the scrutiny of the FHA 90 day rule. Although this is not the first flip where I have to deal with this, I find that dealing with this rule keeps on changing.

I managed to get two offers on it on the first week but in both cases the buyers lender could not do the loan because I had owned the house for less than 90 days. I was able to find a way around this; here is what I am dealing with:

- This rule only applies to FHA loans but 95% of the buyers out there (at my price point) are using FHA loans

- When I get an offer from a potential buyer and they show me a mortgage pre-approval letter it does not mean anything...most of those lenders all they do is check the buyers credit score. They don't verify income, check tax returns or anything like that. So there is still a very long way to go to actually being approved for a loan.

- Before accepting their offer I call their lender and make sure they are aware that my property is pre-90 day and that they can do the loan. I had two lenders right off the bat tell me they can't do it. This saves everyone A LOT of time.

- I have had to explain the 90 day rule to agents and lenders! Many times they dont' know about it and don't know how it works.

- Like J Scott suggested to me before, I have tried very hard to get the buyer to use my recommended lender instead of theirs. That is because I know my lender can do FHA loans on pre-90 day properties when others can't. However sometimes getting a buyer to switch lenders is met with a lot of resistance so I offer to pay for both appraisals, a longer financing contingency period, I threw in a washer/dryer and let them choose the closing attorney (again, thanks to J Scott tips).

Finally I am finding that although legally it's ok to do FHA loans on pre-90 day properties some banks do not want to do it if the house is being sold for more than 20% of what I paid for it. I have seen this mostly from the big banks (BOA, Wells Fargo, Fifth Third bank, etc.).

If you find yourself dealing with this 90 day rule feel free to send me a note if you need help. I have gotten a lot of practice with it over the last two years ;-)