The real estate market is always changing, and it’s a great place for smart investors to make money. Flipping houses has become a really popular way to do this. But, like anything, it comes with its own rules and tricky parts. One of the most important rules to know about is the “90-Day Rule.” In this blog post, we’ll explain what the 90-Day Rule is, how it affects people who flip houses, and share some tips on how to work with it.
Understanding the 90-Day Rule
The 90-Day Rule is a key regulation linked to the Federal Housing Administration (FHA). In simple terms, this rule stops the FHA from insuring a mortgage for a home if the seller has owned it for less than 90 days. Why does this matter? Well, this rule was put in place to prevent a certain kind of fraud. Sometimes, people would buy a house, own it for just a short time, and then sell it again at a much higher price than it’s really worth. By introducing the 90-Day Rule, the FHA aimed to stop this quick-buy-and-sell scheme, ensuring a more stable and fair housing market.
Why It Matters for House Flippers
For house flippers, this rule is crucial because it limits their pool of potential buyers. If you’re flipping a house and intend to sell it within 90 days, buyers who require FHA financing – which is common among first-time homebuyers and those with lower credit scores – won’t be eligible to purchase your property. This restriction can impact the sale timeline and potentially the profit margins.
Take your real estate investing to new heights with Oambase, our advanced property investment analysis software. Streamline your deal analysis, access comprehensive market data, and make informed, profitable decisions with ease. Start your journey towards smarter investing today!
How is the 90-day rule calculated?
The 90-day rule is calculated from the date that the seller acquired the property to the date that the sales contract is signed with the buyer. If the time between these two dates is less than 90 days, the FHA will not approve the loan.
Who is affected by the 90-day rule?
The 90-day rule only applies to properties that are being financed with an FHA loan. If you are buying a property with a conventional loan, the rule does not apply.
Exemptions to the Rule
While the 90-Day Rule is strict, there are some key exceptions. For example, if the seller is a bank offloading a foreclosed home, this rule doesn’t come into play. That means buyers using FHA loans can purchase these properties without worrying about the 90-day ownership period. Also, in special cases, the FHA might decide to not enforce this rule. This often happens in areas targeted for redevelopment or renewal, where quick sales are encouraged to help rejuvenate the neighborhood.
Strategies for Navigating the 90-Day Rule
- Prepare for Extended Ownership: When flipping a house, it’s wise to plan for the chance that you’ll own the property for more than 90 days. This means setting aside funds for ongoing expenses like mortgage payments, property taxes, and insurance. An extended holding period can affect your budget, so it’s important to be prepared.
- Focus on Buyers with Alternative Financing: Since the 90-Day Rule limits FHA loan buyers, shift your focus to those who can use different types of financing. This could mean reaching out to investors or individuals who qualify for conventional loans. By targeting a diverse range of buyers, you increase your chances of a timely sale.
- Invest in High-Quality Renovations: If there’s a possibility of holding onto your flip for a longer period, it pays to invest in renovations that genuinely enhance the property’s value and appeal. High-quality work can justify a higher selling price and attract a wider pool of buyers, making your property stand out in the market.
- Know Your Local Market Inside and Out: Real estate markets vary greatly from one area to another. To flip houses successfully, you need a deep understanding of your local market, especially regarding the popularity of FHA loans. Being well-informed about your specific market helps you tailor your flipping strategy effectively and make smarter investment choices.
Conclusion
The 90-Day Rule is a critical consideration for anyone involved in flipping houses. While it presents certain challenges, understanding and strategizing around it can lead to successful and profitable flipping ventures. As with any real estate investment, knowledge, planning, and adaptability are key to navigating the complexities of the market.
Explore More
Rocket Mortgage – FHA Flipping Rules: Guidelines And Exceptions
