FHA WAIVES 90-DAY SELLER SEASONING and what this means for you…

On January 15, 2010, FHA took action to make the growing number of recently foreclosed properties available to a much larger audience of potential home buyers by waiving the current 90-day seller seasoning requirement to execute a purchase contract as a condition for FHA loan approvals. The following is an excerpt from HUD’s website:

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.”

So what does this mean to potential homebuyers and real estate investors?

Prior to this waiver, investors have held back from marketing their properties to the FHA approved buyer audience.Now, to the potential homebuyer this waiver opens up a quickly expanding inventory of recently foreclosed properties allowing buyers to select from a larger number of listings and theoretically purchase the properties at a better discount than today’s market allows. In the case that the property needs repairs, buyers can purchase the properties by taking advantage of 203k loans to complete the necessary repairs.

For the average investor, the typical foreclosed property requires less than 90 days worth of repairs and marketing to complete a sale to an end buyer. FHA’s previous 90-day requirement held the investor to an average of at least 4 months of carrying costs (3 months seasoning and at least 1 month of loan processing to close the typical loan). FHA buyers represented a 39% share of buyers according to the November 2009 REALTORS Confidence Index survey. With the waiver in effect, investors can now market to this large pool of buyers just waiting to purchase the recently foreclosed homes. This means more buyers and a greater margin earned on sales.

This waiver is a much needed boost to today’s real estate market. My recommendation to all potential homebuyers is to contact your trusted mortgage professional and get approved for an FHA loan today. Then keep checking our blog for your next home!

by Ruben D. Acosta

REAL Enterprises, LLC, the Premier NJ Real Estate Investment Consulting Firm

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