Until January 31, 2010, it is forbidden for a property to be purchased using an FHA loan if the property had been owned by the seller for less than 90 days (unless you are a bank trying to unload an REO property).  In a nutshell, it was very difficult for buyers to purchase a home which was remodeled for a flip by an investor; or simply from an investor who just purchased it with the intention of re-selling it quickly.    (We won’t get into the rationale behind the prohibition here today.)

Given the amount of interest in the marketplace for first time homebuyers trying to use the tax credit incentive to finance their first purchase, it was quite challenging to find good properties for buyers to purchase here in Silicon Valley.  This also contributed to lots of properties receiving multiple offers.

As of February 1, 2010, that prohibition will be lifted for one year.  (Click here for the specifics).    Now buyers using FHA loans (which according to some stats say represents up to 40% of all financing) can have access to a source of properties which was not available until now.

This change should: 1) encourage investors to purchase more properties from distressed markets knowing they can turn around and sell them immediately without incurring additional carrying costs and/or 2) encourage FHA buyers to purchase more properties from these investors.

Either way, this act along with other proposals should help deplete the inventory of distressed properties out there, so we can more quickly lead back into a normal housing market.