The FHA change rule works by restricting FHA financing on a home if it has been sold in the past 90 days. The 90-day change rule is easy. If the current seller owned the home for 90 days or less, the loan will not be approved. The FHA change rule restricts financing of a home with FHA insurance if the home was previously sold within the past 90 days.
If the home was purchased within 90 days and renovated, that home can't get a new FHA loan until 91 days after the property closed. With the 90-day change rule, the FHA prohibits lenders from approving a loan for a property that the seller has owned for less than 90 days. In general terms, the FHA wants to avoid massive and potentially unreliable changes in the valuation of a home due to an inverted rehabilitation. The FHA change rule also covers any home that was sold between 91 and 180 days before and is pending sale for 100% of the original cost.
The FHA has decided that a 10% return on a home change reflects both market demands and its own requirements, allowing this option as an alternative solution to the 90-day change rule. And, remember, the 90-day rule doesn't restrict investor actions in the home; it simply limits loan approval options for prospective buyers. There are some exceptions to the FHA change of ownership rule because the FHA understands that not all changes of ownership are fraudulent. It will likely take more than 90 days to complete all of the above, making the 90-day change rule irrelevant.
The good news is that all other loan programs, including conventional, USDA and VA loans, have no housing change rules. The second workaround to the 90-day change rule actually represents a continuation of the previous rule, since it still involves a second evaluation. There is great opportunity with investing in properties that allow investors to make a profit while providing homebuyers with greater options to buy. A conventional loan will not have a change rule and the down payment is lower than an FHA loan.
When buying a home to turn it around, investors should estimate how much they think the property could sell after it has been renovated. If you want to change a home, it's important that you first develop relationships with real estate agents who know the market well and can get comparable sales for you to use as a guide. If you are looking to purchase a converted home with FHA financing, be sure to work with a reputable FHA lender who understands the 90-day change rule and ensures that the sale is completed within FHA rules. Another way to protect yourself when bidding on a home you want to change is to use conservative numbers.