Wednesday, February 10, 2010
February is a good month for first-time homebuyers, house-flippers, and even entire communities. A fresh policy change from the FHA means that house flipping, the practice of purchasing an inexpensive home in ill repair, fixing it up, and selling it for a profit, is a lot easier. With all the changes we’ve seen in real estate legislation recently, include the stimulus and the tax benefits, 2010 as a whole is looking to be a very good year.
What Is the Change?
The change coming from the Federal Housing Administration has to do with what was formerly known as the “anti-flipping rule.” Under the old rule, the FHA did not provide mortgage insurance for homes that were owned for a period shorter than ninety days. At the time that the rule was made, it was necessary. Too many flipping schemes were actually conning schemes, and the FHA needed to prevent defaulting and bad loans.
Now, the policy is different. Private investors are able to purchase homes, renovate them, and sell within ninety days, and still have the mortgage insurance provided through the FHA.
What Kind of Effects Will It Have?
The change is important for several reasons—reasons that will help homebuyers, private investors, and communities. Homebuyers, especially first-time homebuyers, will now be able to purchase flipped low-down-payment homes with loans from the FHA. FHA loans usually require a mere 3.5% down payment, making them much easier to purchase. Speeding up sales is not only nice for homebuyers; it’s good for the economy, too.
The second group of people who will benefit are private investors, those who make a living by buying houses at a low cost, fixing them up, and selling them for a higher price. Usually, these investors purchase foreclosed homes due to their low cost and run-down condition. The faster they fix up the home and sell it—i.e., in less than ninety days—the better.
Another way that the relaxed rule helps is through its benefit to foreclosure-sagging communities. With an invitation to investors and homebuyers alike, communities may begin to revive by having fewer foreclosures and bank-owned homes burdening the market. Without the blockage of the anti-flipping rule, investors can much more easily buy the houses, fix them up, and turn around to quickly sell them to eager buyers in need of a new home.
The FHA has instituted the change for at least a year. This will allow them to monitor the situation closely and see if it is worth extending for the long term.