The Buyer’s Experience: The 90-Day Rule

by Shilpi Paul

The Buyer’s Experience is a feature on UrbanTurf where home buyers and sellers tell the good, the bad, the ugly and the weird associated with their home buying or selling experience.


If you feel tempted to buy a home that was purchased and renovated in a relatively short amount of time, you should probably be wary for many reasons, but one is that most lenders will not approve loans for a home that is back on the market less than 90 days after it was purchased. This is to protect buyers (and banks) from fraud. For further protection, lenders often require that homes purchased within the past six months undergo two appraisals to justify any increase in price.

UrbanTurf spoke with lender William Slosberg at Acacia FSB for some insight into the reasoning behind the rule.

“Fannie Mae and Freddie Mac were concerned of the potential for fraud” Slosberg said. “They questioned how much renovation could be done within 90 days to justify a significant increase in the sales price.”

Slosberg explained that the 90 day mark helps to ensure the buyers are really getting added value with the higher price.

“Think of it: you purchase a house, then you have to apply for building permits, get the permits, start the work, get the work inspected, put it on the market, sell it and go to settlement. Those situations are few and far between.”

FHA loans used to contain this stipulation, but HUD has temporarily suspended it. Back in 2010, FHA commissioner David H. Stevens said that the objective with suspending the rule was to speed sales of renovated houses, often foreclosures, to first-time buyers and other purchasers. Still, there are several conditions that apply regarding the increase in value and the relationship between buyer and seller that are aimed at protecting the borrower. The suspension of the stipulation is set to expire on December 31, 2011.

However, for all it does to protect buyers, the 90-day rule can often cause confusion. Karen deGategno and her husband Patrick almost landed on the streets as a result of it.

Eager to buy their first house, the deGategnos found a home in Brookland that fit a number of their requirements (quiet street, north-south facing exposures and proximity to a Chinese-English bilingual public charter school). They qualified for a conventional loan, went under contract and planned their move, giving notice to their landlord.

However, the 90-day rule was in play with the home, and the constraint didn’t emerge until an underwriter put all the pieces together days before their desired closing date. The deal screeched to a halt and everyone had to wait until the 90-day mark, which passed on September 30th, before closing could happen. With a new tenant moving into their old place on October 1, Patrick and Karen made their move with just hours to spare, and despite all the confusion, love their new place.

If you have a good, bad, crazy or weird buying or selling experience that you deem worthy of sharing with the UT audience, send an email to .(JavaScript must be enabled to view this email address).


See other articles related to: mortgage lending, freddie mac, fha, fannie mae, dclofts, 90-day rule

This article originally published at http://dc.urbanturf.com/articles/blog/the_buyers_experience_the_90_day_flip_rule/4361


  1. LM said at 3:32 pm on Monday October 17, 2011:

    I think this is a very important rule, especially when so many foreclosures are being purchased and rehabbed these days.

  1. Plugging the Hole said at 4:01 pm on Monday October 17, 2011:

    Leave it to HUD to be a day late and $3 short.  They are trying to correct the bad flip problems of 2005 which have no relevance to today’s flips.  What HUD doesn’t understand, and what most buyer and agents don’t understand, is that a flip has so many more costs than renovations.  For instance, if you are to buy a foreclosure at auction you don’t get the house right then and there.  You have to wait until the court rules on the foreclosure and that can take between 3 months to 1 year.  In the meantime you, the auction buyer, are on the hook for all of the interest that accrues on the foreclosed loan while you wait on the courts.  This alone can cost 7%-10% of the purchase price.  Then you have to possibly evict the former owners ($$) and then pay all of the closing cost on the purchase of the sale ($$).  This is all before you even start any renovations and you’ve already got about 15% in hard costs.  Don’t forget that while all of this takes place the market is changing and not always in the desirable direction so there is huge risk involved in the transaction.  Now, assuming you’re not doing any structure changes or any electrical panel modifications, bathroom additions or any of that stuff but just an overall cosmetic renovation i.e. new kitchen, new baths, new windows, new flooring, new lighting, new roof and such, you don’t need to wait for permits but just have to have licensed contractors due the work and keep record that it was all done right.  If no one is living in the home and the job is managed properly, why should it take 3 months to complete?  A pro can get it done right in 3-4 weeks.  So then HUD wants the house to sit there vacant for another 2 months to legitimize the sale?  That just makes no sense!  We all saw some crazy stuff go down in the bubble days but today’s world is nothing like that so why regulate the past and inhibit the good things that are happening in the present.  For as much as people love to hate the flipper, we should all be thanking them today for cleaning up some of the garbage that others don’t want to deal with and making our neighborhoods a nicer place to live.  There is nothing wrong with making a profit when you deliver a product that has a demand.  This is just another fine example of the absurdity of our regulatory bureaucracy.

  1. roots said at 11:44 pm on Monday October 17, 2011:

    Plug - Good points but in the end I think it’s more about learning from the past. Don’t let history repeat itself. Yes, some people can reno a house in a month but that has to be more the exception than the rule. Again, HUD can improve it’s agency in alot of ways but I don’t think this is so bad.

    As for appraisers, they might be the biggest scam in the game. I had my place “appraised” a month ago for a refi. Guy came in my house for less than 5 minutes and then just happened to “appraise” my place for exactly what the city has it valued at.

    Let’s be honest, flippers aren’t in the game to reno a house that they can be proud of, they are in it to flip the house for $$$$$.

  1. cccrewmom said at 10:12 pm on Wednesday October 19, 2011:

    This doesn’t surprise me at all - in Brookland there are several developers who specialize in getting estate or dilapidated houses and completely redoing them (they call it cosmetic but new plumbing and electrical are usually involved with questionable permitting) in 6 to 8 weeks.  They can do it because the houses tend to be small.  The rule is just a bureaucratic response to a past problem.  Typical.

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