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Regulations for Flipping Houses That You Should Know

Flipping Houses Regulations

House flipping can be a lucrative form of making money, but it is also one that entails a great deal of risk versus any potential, only to not consider all the long term ramifications, (especially financial) which can lead to property devaluation and mortgage foreclosure.

The Federal Housing Administration (FHA) is a government federal agency, currently a part of the the Department of Housing and Urban Development (HUD), The agency’s primarily role is to set the policy under which mortgages can be enacted between a borrower and lender. The FHA provides insurance to a lender of up to 97% of the value of a property in the instance that those properties are foreclosed upon.

While policies are not required to be purchased through the FHA, and a majority of them, in fact are not, the FHA plays a key part in the financing and refinancing of mortgages today (especially after the economic meltdown) and thus sets the rules by which all lenders and insurers follow. Usually, this requires a down payment by the borrower of about 3.5% before a mortgage meets FHA guidelines.

In terms of flipping properties, the FHA enacted a very specific policy directed at curbing the trend in 2005 by requiring additional inspections and safeguards taken on mortgages applied for on properties that have been owned for less than 180 days, and outright forbidding the approval of mortgages on properties owned for less than 90 taxes, and even mortgage repayments.

Primarily though, it limits scams involving multiple flipping, which usually are done to defraud lending institutions by engaging multiple parties to acquire loans to purchase a property while artificially inflating its value for a final loan, which is then used to pay off earlier loans which required a minimal expenditure of capital.

Despite the FHA’s usual guidelines and ongoing restrictions put in place by the free market and lending institutions, there are still numerous loopholes and unregulated areas that an unethical or inattentive flipper can exploit when flipping a property, thus it still remains up to the buyer to perform all the necessary due diligence before purchasing a property.

NEXT: The Best Tips for House Flipping

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