What Is the FHA Seasoning Waiver?

Here’s some great news for real estate investors a to start the new year: the FHA has relaxed its restriction on allowing financing to buyers purchasing a home that has not be owned at least 90 days by the seller they are purchasing from. That is great news for all involved in real estate investing because it now allows an investor to purchase a distressed property, fix it quickly and sell it to a first time home owner without waiting 90 days for the title to season. First time home owners are often drawn to FHA financing because of the lower down payment feature of those type of loans. The Waiver was set to expire on December 31, 2011 but was extended through 2012.

The FHA put the rule in to effect to try to discourage “flipping” where one person purchases a home and then re-sells it immediately for an inflated price with no improvement to justify the increase in value. That rule was first enacted back in 2003 but a more recent analysis of the situation lead them to see that the problems causing the real estate melt down were more strongly related to stated income type loans that did not look at all at whether the borrower had the income to actually pay back the loan.

This new relaxing of the 90 day seasoning rule means real estate investors and rehabbers can purchase the most distressed of the properties that are clogging the sales, fix them and sell them to first time home buyers who must still meet the income requirements. Other restrictions of the new rule are that if the new sales price is more than 20 per cent of what the previous short time owner paid, there must be supporting documentation that justifies the exception, such as improvements to the property.They are not eliminating a profit on the transaction, just requiring a reasoned look at what the justification for that profit is. That makes good sense and solves the original problem in a much more intelligent way. You can use this link to read the HUD press release.

All in all, this is a very good thing for every one involved: real estate investors, contractors, banks with stock piles of distressed properties that have been clogging the real estate markets, real estate brokers, mortgage brokers, and especially the first time home buyers that really need some good news. This is an example of what the government should be doing to cut some of the red tape restrictions that have been causing the economic slow downs.

One mistake new investors often make is not having several exit strategies in mind before they make a purchase. You should know what you are going to do with the property to realize a profit. Holding the property and renting it out would be a strategy. Repairing and selling to another investor would be another. Timing, the length of time you hold the property, affects your bottom line, Being able to sell quickly to a first time home buyer moves a simple fix up and sell to someone that has been renting but now wants to own gets the property moved to exactly the type of buyer that would be expected to have an interest in a starter type home. Selling to a first time homeowner using FHA financing should be at least one exit strategy to consider because the waiting or seasoning requirements are waived for 2012.

What Is the FHA Seasoning Waiver?