House flipping just got harder

FHA has never been a big fan of house flipping due to fraudulent flips that saddled it with big losses in years past. As a result, it instituted a rule that in order for a buyer to use FHA financing, the seller must have owned the house for 90 days prior to signing a purchase contract.

During the housing recession, FHA decided to waive this rule, allowing sellers to flip houses after owning the property for as little as 30 days. The waiver allowed real estate investors to make tidy profits selling thousands of rehabilitated homes to FHA buyers.

The waiver expired on Dec 31st. For any purchase contract signed after that date, the old 90-day rule applies. FHA says the dangers of house flipping outweigh the benefits for first-time and minority homebuyers - those dangers being that flippers will sell poorly renovated homes at inflated prices to unsuspecting buyers. Of course, investors disagree and point out that the house flip rule only raises the cost of renovated homes. Flippers say they can rehabilitate a home in 45 days. Having to hold the home for an additional 45 days just increases the flippers' holding costs, which get passed along to the buyer.

If you're working with investors, this change affects the pool of potential buyers. While they won't be able to sell to FHA buyers for 90 days, they can sell to buyers using conventional financing as Fannie and Freddie only require a seller to own a home for 30 days.