Regulations, fun stuff huh? Many buyers, especially new home buyers choose FHA loans due to the availability. Why is this important?
If you are an investor doing quick flips you should know that as of 2015 properties that have been owned for less than 90 days are not eligible for FHA loans.
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“Re-sales occuring 90 days or less following acquisition: If the re-sale date is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage to be insured by FHA.” [24 C.F.R § 203.37a Sale of Property]
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Is there any way around this? Maybe.
If the buyer is going with the FHA for the low down payment (currently 3.5% down) there may be another option. If they are a first time home buyer they may qualify for conventional with as little as 3% down. However as the investor, you should expect to cut out that portion of the market when flipping.
If you think your flip is going to take more than 90 days you can accept FHA financing but know that there are a little more involved. In most cases they will need 2 appraisals to be sure there were improvements made to justify the price.
Can we have an executed contract and close on the 91st day?
This is a common question and unfortunately the answer is no. The start of the 90 days begins when the investor closes on the property. The FHA regulations stipulate that there cannot be a contract until after 90 days. So at that point, you could have everything ready to go, execute the contract and if you’re lucky close within two weeks time.
Moral of the story, if you are doing quick flips, you will be cutting out part of your market when you go to sell. Make sure to take this into account when factoring in your days on market. It’s always better to price low and sell high. Work your numbers backwards.
