HUD announced Friday that the 90 day title seasoning requirement on FHA, Fannie Mae and Freddie Mac loans will be waived beginning February 1, 2010 for one year. This is the greatest news to hit the real estate investing world in the past 20 years.
I'm sobbing from jubilation, trying to wipe back the tears as I type. (And you should be jumping up and down as you read this too). This is the most exciting decision the government has made in recent history as it pertains to real estate investing. Let me explain…
For as long as I can remember, the FHA 90 day title seasoning rule has been in effect. This rule applied when someone was originating an FHA, Fannie Mae, or Freddie Mac loan to purchase a home. The rule stated that the seller of the property had to be on title for at least 90 days. This one stipulation was so powerful (and constrictive) that many rehabbers would avoid doing deals when they knew an FHA buyer would be the most likely purchaser of the property.
Not to mention the scores of short sale and foreclosure investors who didn't (or couldn't) hold onto deals for 90 days before re-selling. As you can see, the 90 day FHA title seasoning rule had an enormous impact on the residential real estate world from its very inception.
And this problem was even further exacerbated by the recent mortgage meltdown because private lending all but disappeared and government lending skyrocketed, with now some 75% of all loans originated in this country now being FHA, Fannie Mae and Freddie Mac loans. So this rule became so pervasive, it affected nearly 3/4 of all of all real estate transactions.
As real estate investors, re-selling a property to a new buyer in the shortest amount of time possible is the name of the game. But for the longest time, if you marketed your deal and a buyer came along that was using a government backed loan (FHA, Fannie Mae, Freddie Mac), in order to sell to that buyer, you had to wait at least 90 days. This has been the source of much pain, lost profits and frustration for hundreds of thousands of buyers, sellers, investors, agents, closing companies and mortgage brokers.
But not anymore! Now do you see why I am so incredibly excited? This is the greatest gift the government has given real estate investors in 20 years.
You may be asking yourself why on earth would the government want to help us investors? Well, I doubt they had us in mind when they drafted this legislation. In fact, here is what HUD said was the reason:
“…This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities…”
What this tells me is that the government does recognize the value real estate investors bring to the real estate marketplace.
But with all government initiatives, there is always some fine print. You can read all the fine print HERE. Or, you can just read the highlights I have laid out below:
- 90 day seasoning rule waived for 1 year beginning February 1st 2010
- No previous flipping activity existing on the subject property in the past 12 months
- The property was marketed “openly and fairly” by MLS, auction, FSBO, etc
- If the increase in price is over 20% of the seller’s acquisition cost, a 2nd appraisal may be required
- All transactions must be arms-length
For my students, coaches and I, this even further excites us because we already cover the above conditions on all of our transactions so we won't have to do anything different than we are already doing.
It truly is a dream come true. I was jumping around the house all weekend, my wife and daughter having no idea why I was so excited. It's one of those things that only professional investors can truly appreciate.
On top of all the other reasons why 2010 is the perfect year to be in short sales and foreclosures, this new change is icing on the cake!
Feel free to post a comment below. I'd love to hear your thoughts.