The FHA Waives Its 90 Day Seasoning Requirement

FHA WAIVES LONG-STANDING

90 DAY SEASONING RULE 

Previously, private investors had to wait for at least 91 days from their acquisition date before they could resell a house if the new buyer was using a FHA loan.  

Most of these investors are involved in purchasing and rehabbing homes stripped by owners, left in disrepair or simply left vacant and open to the elements during the foreclosure and short sale process. While this rule has been in effect for a long time - with the mortgage meltdown of late – FHA financing has rocketed to the forefront in financing options.  This is especially true for first time homebuyers because this type of financing only requires a 3.5% down payment.

Many rehab projects take 30 days or less and nearly all of them are far short of 90 days.   Having to hold the property an additional 30 or 45 or even 60 days increases the carry costs which either makes the deal unworkable in the first place and the property continues to blight the neighborhood or, the additional costs presumably get passed along to the new buyer.   In addition, having to leave the property vacant for an extended period of time increases the risk of vandalism or other problems, such as interest rate changes or other market moves.   

Thus, in this economic climate, the rule has had a significant negative impact on investors and with it, a negative impact on the overall rate of absorption of foreclosed and bank-owned inventory. 

However, as of February 1, 2010, the FHA has begun to waive its rule and will allow FHA insurance financing in the resale of homes without regard to when they were previously purchased.  This means there is no longer the need to wait to sell.   Investors are free to rehab the property and turn it loose on the market immediately thereafter.

The lifting of the rule is intended to encourage private investors to buy vacant properties, rehab them and sell them quickly and thereby speed up the absorption of the foreclosed and bank owned properties. 

But, as is with most governmental regulation changes – the waiver comes with strings attached: 

a. All of the transactions must be arm’s length – that is they must be between unrelated parties with opposing interests (one to get as much for the house, one to pay as little for the house). 

b. In the event the sales price is 20% or more than the investor/seller’s original purchase price, the waiver will only apply if the lender meets certain requirements. 

c. The waiver is temporary.  The rule will expire January 31 of next year after which the rule will be reinstated.

The full description of the restrictions can be found on HUD’s website.

If you are interested in foreclosures, short sales and bank owned properties – Contact Us !