FHA Waives 90 Day Rule for Flipping Real Estate

Changes Can Help Homebuyers, Investors, and Communities

In what can be viewed as a change that helps multiple parties, the Federal Housing Authority (FHA) suspended its policy requiring an investor to hold on to a property for at least 90 days before selling it.  This restriction was implemented to curb fraudulent transactions where a home was sold and resold resulting in inflated home values.

The intent of the change is to compress the time a home sits unsold and in bad repair and to help communities where the number of homes in foreclosure is high.  Investors can now purchase the homes, make renovations, and put them on the market quickly-often in 60 days.  The renovated homes are often priced well and the neighborhoods are not negatively impacted by vacant homes in disrepair.

FHA rules now allow low down payment loans of 3.5% without the 90 day limit increasing the number of potential buyers.

Two restrictions still apply:

• Transactions must be arms-length.  There can be NO conflicts of interest between the parties involved in the deal.
• Price changes must be moderate and will generally be limited to 20% unless the seller provides documentation to support significant expenditures for the renovation.