The FHA 90-Day Seasoning Rule on Hiatus: What It Means to Investors & First Time Buyers That Want to Buy their Rehabbed Homes. 

 

By now you’ve probably heard that in an effort to reduce the number of foreclosed homes on the market, the Federal Housing Authority (FHA), part of the U.S. Department of Housing and Urban Development (HUD), has suspended its regulation, sometimes referred to as “title seasoning,” requiring investors to own a property for 90 days before re-selling it. The suspension, which went into effect February 1, will remain in effect for one year. Until then, investors are free to sell to FHA buyers almost immediately after renovations are completed.

 

Does this mean that unscrupulous investors can start coming out of the woodwork again?

 

The 90-day requirement was enacted to reign in “flippers” who bought fixer-uppers and quickly sold them to unwitting buyers at inflated prices without making substantive repairs. To protect borrowers and make sellers more accountable this time around, the FHA has put additional regulations in place:

1. The seller must hold title to, and be the property’s owner of record, at the time of contract. 

2. The property cannot have been “flipped” within the past 12 months.

3. The property must be marketed openly and fairly in MLS, auction, for sale by owner and/or developer, with no “inside deals” or special arrangements such as contract assignments.

4. If the sale price is 20% or more above the acquisition cost, a red flag goes up. Investorrequired to document all repairs, the lender will require a copy of the structural inspection, and the sale price must be justified by two lender-selected appraisers. 

 

5. The FHA has not determined whether these regulations will continue once the 90-day rule is reinstated next year.

 

In the past a buyer would typically explore other options before settling on FHA financing. But today, FHA lending makes up the lion’s share of mortgages being obtained by buyers who need low down payments or have credit scores under 700. It should not be construed that, as some have suggested, FHA loans are the new “sub-prime.” The FHA is extremely stringent in its underwriting requirements because they are insuring the loan will be paid as agreed. Further, the FHA plans to increase its upfront mortgage insurance premium from 1.75% to 2.25% on April 5, which should help weed out some under-qualified buyers.

 

Whether the seasoning waiver will help the market as a whole is a matter for debate. There is no question, however, that professional investors and rehabbers are grateful for the opportunity to reduce their carrying costs and start moving properties more quickly. And the waiver will give FHA borrowers broader access to homeownership and help move foreclosed properties off the market, which will benefit blighted communities. Developments like these are something we can all be grateful for.
 

 All transactions must be arms-length, with no conflicts of interest among the buyer, seller or anyone else involved in the transaction.

 

 

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.

All our best for the upcoming week.

@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team -  (704) 366-7711

Todd Croy - NMLO license #91428

Deanna Valeo - NMLO license #91421

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