FHA 90 Rule Waiver Creates Added Opportunities

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In an effort to further reduce the number of foreclosures on the market FHA has waived the 90 day seasoning requirement for properties bought by investors for resale and profit purposes.  This FHA 90 Day Rule Waiver which shall be in effect through January 31, 2011 will provide new opportunities for home buyers and investors. 

Prior to the waiver all homes purchased for resell could not qualify for FHA financing until 91 days after acquisition, provided improvements could be documented to justify the new higher sales price, or 180 days if improvements had not been made.  The FHA 90 Day Rule Waiver  should result in investors being able to buy and sell homes more quickly, buyers will be afforded more options since the property condition would have been improved resulting in greater ease of financing on FHA loans.  This should also serve to move foreclosure inventory more quickly through the market.

Requirements for FHA 90 Day Waiver

  • All transactions must be arms length with no identity of interest between the buyer and the seller or other parties to the transaction.
  • In cases where the resale price is 20% or more than the sellers acquisition cost (which will nearly always be the case) the lender must do the following.
  • Document the increase in price by verifying the improvements made to the property, and have a second appraisal of the property performed by an independent appraiser.  Knowing this requirement in advance will save approximately a week of underwriting time while waiting on a second appraisal.
  • Order a property inspection independent of the buyer’s inspection from an inspector with no interest in the property or any connection with either of parties.  The inspector shall be compensated by the lender who may charge the buyer for the inspection.

The inspection must cover property structure, foundation, roof, ceilings and floors.  Doors, windows, decks and balconies as well as plumbing, electrical and heating and air systems, plus fireplaces, appliances and interiors shall be evaluated.

Please be aware that many of the recent foreclosures have been bought and renovated by investors and are now back on the market for resell.  Knowing these key points will alert you to possible time delays and additional cost, which if considered in advance may be transferred to the seller.

As an investor the FHA 90 Day Rule Waiver will greatly reduce the length of time necessary to resell a rehab utilizing FHA financing, And since loan limits for FHA are at $346,250 and make up approximately 40% of the mortgage market, this is significant.

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