FHA seasoning requirements?

[Eric]

Okay,  I can't get a straight answer from anyone on this.  I have two rehabs under way, and I'm now told by various people that the FHA has a "proposed" requirement for 6 months of seasoning.  This obviously screws up my exit strategy.  Moreover, I'm told they put caps on how much they'll allow you to make on a deal.  Are you serious?  

Next, I'm told it's already in effect.  Which is it?  Is it a "proposal", is it in effect?

Finally, I'm told there may be a way around it if you document your repairs well with receipts, before and after pics, etc.  Any lenders out there know the deal on this?

[Admin]

Eric,
I'm not sure, but I know I've sold some of my rehabs FHA within six months, but they were A paper buyers.  As much talk as there is about seasoning, it's never been an issue for me, but I don't do a ton of rehabs a year. :fingerx

I haven't heard anything about a cap, but I have heard of folks who had to justify the repairs with documentation.

So, I suppose it may be a problem for some folks, but again, I haven't had that experience.

Perhaps we'll have some folks weigh in on the other side...

[hfond]

I bought a pre-forclosure 3 plex (house-$600 and 2-one bedroom apts - $300 each) for $41,000.  Put about $11,000 in rehab.  All this took about 45 days.  I rented all three units, but it on the market for $120,000 - GRM.  Got a full price offer and the bank would not let me get the full price for it, although it did appraise for $120,000.  The bank came back and told me all they would loan the buyer is $105,000.  The bank wanted me to tell them how much I paid for the property, then they wanted to know how much I had in the rehab.   So it does happen.

[Eric]

I knew it.  I had heard they capped how much they let you make on a deal.  Typical government stifling the businessman.  That's outright socialism.  Let's see, um....you were schrewd enough to get into the deal lightly, savvy enough to get a sound rehab done at a bargain price, get a legitimate appraisal for 120K, and ultimately be told you can't sell you property for what it's rightly worth.  Was it a 90 day seasoning with the FHA?

[hfond]

Eric - I bought the property in June and had it rented and rehabed until I got the full price offer in November.  So I was just short of the 6 month, but I was told the time was 12 months for seasoning.  When the bank got  told me what I could sell for, I told them I had never heard about it before and checked with some other banks - found out there is the problem with FHA's.  Guess I could have insisted on a non-FHA loan.  But I have not sold it yet and have it on the market now for $109,000.

[Lagovista1]

I assume you want to use FHA lending because your borrowers are short of cash for downpayment and closing costs or they have some credit issues. There may be other ways around this issue, maybe a second carried by owner or creative B/C lending through some of my investors.

[Eric]

Lagovista 1

Yes sir.  That's why my buyers usually are FHA.  I was trying to avoid carrying paper if at all possible.  I realize I can sell my note to paper buyers after the fact, but it complicates things a bit and I'm not sure how much of a hit I'd take on my note if I sold the second.

To the root of the question, though.  What are the current seasoning requirements for FHA?  Are there caps on my profits?  I mean, say I get into a rehab very lightly, only spend 7K on the repairs, and the legitimate value of the house is now a 30K profit for me.  Am I being penalized by the FHA for buying right?  What's the deal?  Thanks in advance.

[Rock]

Eric,

 The current fha seasoning requirements call for three months seasoning. Some banks will have there own "in house seasoning requirements" before they will fund(even FHA deals) such as 6- 12 months which is really where your problem stems from.

 As Tim pointed out, Banks are now asking investors to justify the improvements done to the property with documentation and there are some even wanting to know what you have paid for the property before they will fund the buyer if your name has not been in the chain of title long enough to pass there sniff test.  All this is supposedly in the name of cracking down on the misproperly labeled "illegal flipping scams".

 Lets define the real problem:  "SEASONING ISSUES for the Lender and a possible Cap on our hard earned profit"

 There are many Lenders out there who donot have seasoning requirements.  YOU Must actively see them out and deal with them.  Having a couple of good mortgage brokers on your Team is the key. Your mortgage broker should no which lenders they deal with, who will not have an issue with seasoning. You should try and guide all your buyers to your mortgage broker so you can maintain control of the deal at all times and minmize this problem. when you run the

 another way to deal with this problem (dipending on your risk tolerance) would be to possibly Take tiltle to the property in a trust With the sellers last name in the title, file a mortgage for your profit to an entity you control and not record the deed right away.  This way if there is a cap you must be paid off as a lein holder in full at close. When you sign the PSA the sellers name is the trustee for "The owner of record" when you order the pest report, inspection, apprasal etc.... you order them as "The Owner of record". It all Matches whats in the chain of title and you have not broken it (chain of title) by recording the deed.  I have been told this works well from another investor (never done it  Never had to) to solve the seasoning issue when your buying the property from a home owner.  You might consider investigating this further with your title company or attorney and formulate your own opinion.

 If you have bought the property from the bank (REO) and I would guide my buyers to my broker, so we could deal with getting the buyer qualified   through banks that dont have seasoning issues, Deal with B-C credit if theres a credit problem and record a trust deed for my profit to ensure i get it all at close. I prefer to not have to take back a second if possible, but I would If I needed to unload a property fast.  If they dont pay me I'm right back in the game.

 With all the seasoning issues I have only ran into this problem a handful of times and thats when i did not control the situation. Maintain control always as much as possible.  The best way i know to hadle a flip is to do a simo close and marry the buyer and seller together in the transaction. You just show up as Fee in the deal.

  Lets Get creative, not give in to them. Theres more than one way to skin a cat within the rules. Im sure someone has a better more creative way, but I hope i have helped some and got your creative juices flowing.



 Ps.  Tim congrats on a great site.  This is Mack from killeen. We went out and looked at some VA property with Joe furman together. Were you able
to get anything accomplished with him.  I am up in the jefferson county area now (Beaumont)  Maybe I'll give you a call when I get Back down to killeen and we could get together.

[mortgagejon]

FHA has been talking about changing this for years.  FHA RECOMMENDS a 6 month seasoning, however, it is Lender discretion.  However, if you will notice, FHA's regulations also state that themselves and any banks (foreclosures being resold by FHA, VA or Banks) are EXEMPT for their own recommendations.  I've been doing "tough" FHA loans since 1996 and it's the ONLY loan I do.  In the last year I've done the end loan on several "flips", including one that was a same day flip (double-close).  When all this started about the "seasoning period" about a year ago, I called my Underwriter immediately.  Her response was if it will appraise on an FHA appraisal, then that's what the sales price can be, and she didn't care about chain-of-title seasoning, again, as long as the house would appraise FHA for the sales price.  I haven't had any problems yet, and I haven't heard otherwise on their policy in Underwriting.  I work for a Mortgage Banker.  I work with the same Underwriter on all my files.  The loans are closed in-house.  The Underwriter verbally gives me a pre-approval, and that same Underwriter does the final underwriting on the file.  My specialty, which is what I advertise for all over Texas, is we will approve a Borrower who has had a Chapter 7 Bankruptcy that has been discharged 1 year.  (not the typical 2 years).   Interest rate is determined by risk.  I also have an agreement with the company that I work for, that if any of my loans default in the first year I will pay back all money I earned on that loan.  Never had to do it yet.  We allow for either Bankruptcy or past credit problems (or no credit) and the investor can write the contract so the Buyer can purchase your home for only $1,100 out-of-pocket (or less).  Read the info on my website page.  We don't go by FICO.  These are the actual FICO scores of some of the loans I have closed in the last 60 days (middle score) - 514, 536, 492, 483, No FICO due to lack of credit, 560, 607, and 576.  My customers average credit score is typically 540.  We do NOT do investor loans, just owner occupied 'tough" FHA loans.  Call me anytime at Toll Free 1-888-844-1433 if you have questions.  Thanks! Jon the Mortgage Man!

[tallinvestor]

I just ran into this problem and it is a lender that usually requires the seasoning. None of my FHA loans have been denied due to seasoning or making too much money but then again I found a good mortgage broker that works with flexible lenders. Keep searching to find the right person. The lender on this recent deal wanted to know how much I bought it for and told them it was my business but what ever they could find as public information they could have   . Once I talked with the broker on the deal I found out all he needed was a list of repairs and how much the RETAIL price would have been, not what I paid for the repairs, I sent it over and we close on Tuesday the 1st of April.

Cary D.