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FHA 90 Day Rule and First Time Buyers

September 28, 2009 | By Kelley Koehler | Filed Under First Time Buyer, Loans and Financing 

I found a lovely house for some of my Buyer clients the other day.  It had been listed previously as a short sale and was under contract, but was suddenly withdrawn from the market.  Turns out, the property was foreclosed upon and bought at auction by an investor.

The investor put in new carpet, painted it, cleaned up the yard, installed new appliances, and put it back on the market within about 2 weeks, for only $5k more than it was listed last time.

So now, it’s a great house, in really good condition with some nice fresh upgrades at a really good price.

Except my clients can’t buy it.

Like many first time buyers, they’re using FHA financing to purchase their first home.  FHA financing lets them come in with a smaller down payment, and the credit score requirements are a bit more lenient than conventional financing.  It’s fabulous financing for first-timers who have steady jobs and a little bit of savings, looking to get into that first home.

But FHA says that the owner of the property has to have held it 90 days before any Buyer with FHA financing can buy it.  In fact, the offer itself must be dated on the 91st day or later.  Which takes this house completely out of the running because it sold on the first day it was listed, and I’m pretty sure they got more than the list price for it.

Of course, not every ‘flip’ is a great deal for home buyers, and certainly many are not well renovated, but it’s frustrating to watch a good one go by and not be able to compete.

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