BIC TIP #1180: The FHA 90 Day Rule
The BIC in the Basement brings you a tip that can save an FHA deal before it falls apart. It is the 90 day flipping rule, as it is known with FHA mortgages. If your buyer is using an FHA loan and falls in love with a property that was purchased within the last 90 days, you are going to run into a problem, and you need to know about it before you write the offer.
What the Rule Says
As Stephen explains it, an FHA buyer cannot write a contract on a property that has been sold within the last 90 days. They have to wait until day 91. That is what FHA underwriting will look for when the loan file comes through.
The rule exists to discourage quick flips at inflated prices, and it comes up most often with those nice, pretty, freshly renovated homes that investors bought, fixed up, and put right back on the market.
No Workarounds
Creative brokers sometimes look for a way around it. Stephen shuts that down. The buyer cannot have an option. They cannot have any kind of lease purchase or anything else in place. It has to be day 91 before they can write any kind of intent to purchase that property.
In other words, do not try to lock it up early with some side agreement and hope underwriting does not notice. They will.
How to Spot It Early
If your FHA buyer is eyeing a property that looks recently renovated, check the sales history before you get too far down the road. If the seller only recently purchased it, count the days. Then talk with your buyer and their lender about timing so everyone understands what is possible.
Your buyer’s loan officer is the best resource for questions on how FHA underwriting will treat a specific property. Bring them in early.
The Practical Takeaway
FHA buyer plus recently sold property equals a count the days moment. If the seller purchased it within the last 90 days, wait until day 91 to write the contract, with no options, lease purchases, or side deals in the meantime. A little patience keeps the loan, and the deal, alive.
