Conventional Loan 90 Day Flip Rule
The first-time homebuyer in the Antelope Valley has faced a competitive
wall recently when trying to purchase lower end homes, let’s say less
than $100,000 in price. A typical first-time homebuyer barely saves up
the 3.5% needed for the down payment on an FHA loan and might need help with closing costs. They make their offer accordingly and then get beat on their offer by an investor buying with all cash or a conventional
loan asking for no closing costs. But a rumor in real estate circles
indicates a big change may come by October 1, 2009.
For a while the Federal Housing Administration has maintained that properties sold within the first 90 days of acquisition are not eligible for FHA insured financing. This means an investor who buys a property and then wants to resell the property within this time, or “flip” the property
as it is called, can’t sell to an FHA buyer. Lenders want the seller to
have title for a period of time and this is called title seasoning.
Well, by October title seasoning may be necessary for conventional loans too, and with tighter restrictions. In other words, properties sold within
the first 90 days of acquisition are not eligible for financing with
a conventional loan. If so, everyone believes the VA loans will follow
suit also. Currently Fannie Mae and Freddie Mac have have no official
title seasoning rule like the the FHA’s. However, there are many
conventional lenders who have already imposed their own rules
concerning title seasoning. But this new policy, if it goes into
effect, will be widespread and may go furthar in requiring a second
appraisal, or field review, from a National Appraisal Company to back
up the first appraisal.This will be for a period when the title is
seasoned 90 days but not yet a year. Exceptions will apply, as they
have for FHA, for foreclosed properties, new home builders, and certain
The 90 day to a year second appraisal requirement may hurt investors who bought properties in terrible condition and under market value and then fix them up to resell for a profit. If a second appraisal is needed you
can bet the first one will be very conservative in nature so that the
first appraiser has very few questions to answer. Dollar amounts for
repairs will be carefully looked at to see if they are in line.
Investors might not get the profit they hoped for. Suddenly, FHA buyers
will be looking better to sellers, that is if FHA doesn’t
start asking for second appraisals also. And, of course, there might be
less competition from investors for the first-time homebuyer.