The news is spreading fast … the FHA has lifted the 90-day seasoning requirement! Unfortunately, much of the news is incomplete or inaccurate. Here's the real deal …
What is this all about?
Since 2003, the FHA has required that a house is "seasoned" for 90 days before resale. So, after closing on a property, you have to wait 90 days before you can sell to a buyer using a FHA-insured loan. That has meant, effectively, that you couldn't flip a house to these buyers.
Why did they do this?
They did it to counter predatory lending and prevent flipping (the kind that involved fraud, but it also affected legitimate wholesalers).
Why have they changed their mind?
Because of the glut in foreclosed homes, which harms the surrounding neighborhoods. They hope this will reduce homes sitting vacant while seasoning occurs. Technically, bank-owned properties were exempt from seasoning, but practically, they usually use servicing companies to get rid of the houses, transferring title to them, which then requires that seasoning occurs.
What are the specifics?
- The requirement is only being lifted for a year.
- FHA still requires homes are in "safe, secure and sound" condition.
- Here's the most important point, the one most investors seem to be overlooking … it ONLY APPLIES TO PROPERTIES ACQUIRED THROUGH FORECLOSURE.
So, Brian, how does this affect us?
It really does, and that's where much of the information has been incomplete or inaccurate. I think the biggest trend will be in banks starting to do more of their own rehabs. Traditionally, if they did a rehab, they'd have to sit on the house for 90 days to sell to a FHA buyer (of course, conventional buyers generally don't have a problem). Banks rehabbing houses is almost inevitable, as supply is excessive, and demand has been too low. Fix them, and they're a lot easier to sell. I've even seen banks renting out REOs, rather than letting them sit vacant.
- FHA no longer requires 90-day seasoning, but only on properties acquired through foreclosure.
- They still require the houses be in "safe, secure and sound" condition.
- This lifting of the seasoning requirement is for one year. It started on June 9, 2008, and continues through June 9, 2009.
To read the "official" HUD ruling: