Home Flippers Beware - The Market for Mortgages is Tightening

TV stations are flooded with home flipping shows. With the surge in real estate values over the past 5-10 years, renovating a home and selling it for a profit has become almost a national past-time. Take the ugliest house on the block, buy it for $300,000, put $50,000 worth of renovations into it, and sell it eight weeks later for half a million dollars. Sounds easy right?

The lynchpin for the home flipping business is the ability to sell the home in the end. And the ability to sell the home is dependent upon the buyer being approved to take on the mortgage.

In case you have been living under a rock, the sub-prime mortgage market has been rocked over the past two to three months. The problems in the sub-prime market have extended to the regular lending market, with lenders being much more picky about who they are lending money to. With many homes being foreclosed and thousands of people simply choosing to walk away from their mortgages, lenders are becoming a lot more choosy as to who they do business with. The days of teaser mortgages and "liar loans" are coming to an end. As I said, with the sub-prime mortgage markets collapsing, lenders are becoming much more stringent in terms of making sure that borrowers can actually afford their mortgage payments.

As a home flipper or potential home flipper, this should be very important news to you. The last thing that you want is to flip your home and then not be able to move it when you are finished. This is a two-headed monster. First off, the housing market is weakening, and you run the risk of your original purchase dropping in value while you are renovating it. And then, because the mortgage market is tighter right now, less people will be approved for a mortgage to buy the home that you just renovated, so you will likely have a tougher time moving your home.

Now probably isn't the best time to be thinking about flipping a home. There are undoubtedly pockets around the US that are still hot, but overall, this is becoming a buyer's market, and not a seller's market. You probably want to keep this in mind if you are thinking about flipping a home. It's simple economics. Less demand equals more supply which equals dropping home prices, which will make it harder for you to flip a home. Be careful.

Filed under: Real Estate News