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Investors – FHA Waives 90 Day Hold Rule

by admin on January 17, 2010

Effective February 1, 2010 – FHA will waive their 90 day seasoning rule for a one-year trial period. This is great news for sellers and buyers of investment property in Sacramento! In the past, it was difficult to resell properties because the end buyer could not use FHA financing unless the seller held title for 90 days. This meant that the seller (wholesaler or rehabber) had to sit on the property for 90 days or try to find a buyer who did not need FHA financing, which ruled out about one-half of all potential buyers. There are still some restrictions, but here are the basics (be sure to read the new rules for yourself):

1. The seller must hold title to the property (no assignments or simultaneous closings).
2. The sale must be an arms-length transaction (no tricks).
3. Sellers are allowed to hold properties in trusts, S-Corps and LLCs as long as they are legit/legal.
4. There can be no pattern of previous flipping activity on the subject property within 12 months.
5. The property must have been marketed openly and fairly via MLS, auction, FSBO or developer marketing. Any contracts that refer to an “assignment of contract” may be RED FLAGGED.
6. If the sales price of the property is 20% or more over and above the seller’s acquisition cost, additional rules apply. For example, there must be documented rehab and/or repairs to justify the increase or the appraiser must provide an explanation for the increase in value since the prior title transfer. The lender must also order a property inspection and provide that inspection report to the purchaser before closing. (The borrower can be charged for this report.)

Click here to save/print the new FHA rules.

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