The news spread quickly… the FHA has lifted the 90-day seasoning requirement! Unfortunately, a large part of the news is incomplete or inaccurate. Here is the real deal…
That is what it is?
Since 2003, the FHA has required that the house is “dry” for a period of 90 days before the resale. Therefore, after the closing of the property, you must wait 90 days before you can sell it to a buyer using an FHA insured loan. That means, in effect, that we could not pass by a house to these buyers.
Why are they doing this?
They have done this to combat predatory lending and prevent flipping (the kind that are involved in the fraud, but it also affected legitimate wholesalers).
Why have they changed their mind?
Because of the glut of foreclosed homes, which harms the surrounding neighborhoods. They hope that this will reduce the houses sitting vacant while seasoning occurs. Technically, bank-owned properties were exempt from seasoning, but in practice, one generally uses the service companies, to get rid of the houses, the transfer of property, which then requires that the seasoning occurs.
What are the specifics?
- This condition is waived for a year.
- The FHA still requires homes are “safe, secure and sound” condition.
- Here’s the most important point, the more investors seem to be overlooking… it ONLY APPLIES TO PROPERTIES ACQUIRED THROUGH FORECLOSURE.
So, Brian, how does this affect us?
It really doesn’t, and this is where a large part of the information is incomplete or inaccurate. I think the biggest trend in the banks starting to make more of their own rehabs. Traditionally, if they did a rehab, they would have to sit on the house for a period of 90 days to sell to an FHA buyer (of course, conventional buyers generally do not have a problem). Banks rehabbing houses is almost inevitable, because the supply is excessive, and the demand has been too low. Fix them, and they are much easier to sell. I have even seen banks renting Reos, rather than let them sit vacant.
- The FHA no longer requires 90 days seasoning, but only on the properties acquired through foreclosure.
- They still require houses in a “safe, secure and sound” condition.
- This lifting of the seasoning requirement is one year. It began on June 9, 2008 and continues until June 9, 2009.
To read the “official” HUD decision: