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January 5th, 2012

The flips must go on

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Fran Images--SoldThe FHA has declared that the flips must go on. The mortgage insurer recently announced that it would extend a reprieve of its anti-flipping law through 2012.

The exception to their anti-flipping law was originally enacted in 2010 and set to expire this month. The rule states that the FHA will not insure loans that are bought and sold within 90 days. Allowing house flippers to continue to operate via FHA loans is considered by proponents as a way to help remove excess foreclosures and stabilize home prices.

Targeting low-income neighborhoods

Allowing house flippers to continue their business with the assistance of the FHA is especially important to low-income neighborhoods. Many low-income areas have been especially plagued by the foreclosure crisis, and likewise, many of these areas depend on the FHA’s insurance.

The flips have to be justified

In order for flipped properties to qualify under the FHA’s exemption, the homes must meet certain criteria:

1. The sale must be an “arm’s length transaction.” According to the National Association of Realtors, an arm’s length transaction “is one in which the buyers and sellers act independently and have no relationship to each other. The concept of an arm’s length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party.”

The FHA originally instituted the anti-flipping law to prevent fraudulent sales. As Les Christies of CNN Money explains, “The ban against flipping was initially put in place to prevent predatory flipping, in which homes are quickly resold at inflated prices to unsuspecting borrowers.”

2. If the new price of the home is more than 20 percent above the original price, lenders must justify the cost increase and make sure certain items, like home inspections, have been conducted before the flipped property can sell.

Can you make a living flipping houses?

With home prices the lowest they’ve been in years and mortgage rates at multi-decade lows, you might be thinking of trying your hand at flipping houses. But how easy is it to buy, remodel and flip a house for a profit, or at the very least, not lose your shirt in the process?

Before jumping into this new business venture, you’ll want to pause and think for a moment about what you are trying to accomplish with this home purchase. Flipping is not the “get rich quick” formula it was just a few years back. In fact, you can easily lose your hard-earned money if you’re not careful and do not know exactly what you are getting into.

Be sure to read our article “Can you make a living flipping houses” to learn more.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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