Lending institutions such as Bank of America, Wells Fargo and Chase, along with the government entities that insure their home loans (i.e. Fannie Mae, Freddie Mac, FHA), have their own set of guidelines for flipping properties.
The FHA wants two appraisals (the 2nd must be paid for by the seller) as well as a detailed list of improvements made to the home. Of course, this only applies if you’re selling the house for more than 20% of what you paid for it.
Next, you have to repair EVERYTHING the FHA home inspector says needs to be fixed, regardless of whether or not the buyer asks for these repairs. If you don’t fix them then the FHA will not insure the loan.
Among some of the more ridiculous items you may have to fix:
- Install anti-tipping device on kitchen range
- Replace cracked roof tile
- Caulk bottom of toilet fixtures
But what can you do? It’s the FHA’s way or the highway. They make the rules. They can change them whenever it suits their needs.
It’s universally known that banks don’t fix anything. Since the bank and the FHA are essentially business partners some guidelines such as seller repairs, are not enforced. Together they make up the rules and enforce them subjectively.
It’s estimated that about 20% of all loans originated in 2010 were FHA insured. If you’re fixing and flipping on a regular basis you’ll eventually have to sell to an FHA buyer.