FHA Lifts Seasoning Requirement: What Does This Mean for Real Estate Investing?
Word is spreading fast… FHA has removed the 90 day seasoning requirement! Unfortunately, much of the news is incomplete or inaccurate. Here’s the real deal…
What is all this?
Since 2003, the FHA has required a home to be “seasoned” for 90 days before resale. So after closing on a property, you must wait 90 days before you can sell it to a buyer using an FHA-insured loan. That has effectively meant that you cannot sell a house to these buyers.
Why did they do this?
They did this to counter predatory lending and prevent investment (the kind that involved fraud, but also affected legitimate wholesalers).
Why have they changed their mind?
Due to the oversupply of repossessed homes, which harms the surrounding neighborhoods. They hope this will reduce homes being left empty while drying takes place. Technically, bank properties were exempt from drying, but in practice, they typically use service companies to dispose of houses, transferring title to them, which then requires drying to occur.
What are the details?
- The requirement is only lifted for one year.
- FHA still requires homes to be in “safe and sound” condition.
- This is the most important point, the one that most investors seem to be overlooking… ONLY APPLIES TO PROPERTIES ACQUIRED THROUGH FORECLOSURE.
So Brian, how does this affect us?
It really isn’t, and that’s where much of the information has been incomplete or inaccurate. I think the biggest trend will be for banks to start doing more of their own rehabs. Traditionally, if they did a rehab, they would have to sit on the house for 90 days to sell it to an FHA buyer (of course, conventional buyers generally have no problem). Banks rehabbing houses are almost inevitable, as the supply is too much and the demand has been too low. Fix them up and they’ll be a lot easier to sell. I’ve even seen banks renting out REOs, instead of leaving them empty.
To sum up:
- The FHA no longer requires a 90-day cure, but only on properties acquired through foreclosure.
- They still require homes to be in “safe and sound” condition.
- This lifting of the seasoning requirement is for one year. It started on June 9, 2008 and continues until June 9, 2009.
To read HUD’s “official” ruling:
http://www.briandickersonflips.com/FHA_Seasoning_Ruling.pdf
