It seems that the government is hitting three birds at once with a single far-reaching change in policy. The government wants to help the investors that fix foreclosures, communities troubled with a lot of foreclosed and bank-owned houses, as well as homebuyers with low down payments all at the same time.

Starting this month, the rules have changed and looks to score at the goal. For years now, the FHA’s strict prohibition of not insuring house mortgages if sellers have owned it for not more than 90 days has been around – a response to frauds in house inflations.

This rule has been around for almost ten years now but is now being suspended for 2010. Lenders will once again be offered up mortgage insurance by the FHA for several purchases where sellers close on properties not more than 90 days earlier.

The overall goal of this would be to improve renovated house sales to buyers since, with skyrocketing foreclosure levels, a lot of communities are now face-to-face with too many bank-owned properties lying around unsold and in bad repair.

By getting rid of this 90-day rule, there are now higher chances of private investors bidding on such houses and fixing them up to sell to buyers who can now get early access to financing with the FHA, which provides down payments of 3.5%.

Despite this policy revision, no floodgates are opened to renovations after foreclosure, but here are two primary limitations made to protect the FHA and the end buyers at the same time:

- Run-ups of prices have to stay fairly justifiable and modest from the acquisition of the investor to what the applicant pays. In general, there is a limit of 20%.

- No interest conflicts or game-playing among realty agents, buyers or sellers involved within the deal.

If the price ends up going over 20%, the FHA would expect lenders to have more documentation regarding renovation expenses that investors make to justify the huge increases in price. Lenders also have to order independent inspections of property, so that buyers understand the improvements and the physical condition of the house.