There is a considerably higher portion of houses sold privately in the US compared to Canada.

As his FHA loan is into its 3rd month of processing, and i was just wanting to close and be done with it, i hastily agreed to lower the purchase price to $89k without taking the option fee into consideration. 

Account Closed thanks for the feedback I will take that into consideration while visiting the property tomorrow.

Selling prices are going to rise, flippers' profits are going to decrease and wholesalers are going to be pushed out. 

My question is, do lenders look only at the tax returns, or would they take the circumstances/HUD-1s into consideration when approving loans?

There is also considerable concern that these transactions could be reclassified as loans which would mean the transactions themselves would be violations of both civil and criminal law.So, does anyone still think that lease to own, or rent to own, or rent credit schemes are a good idea?

And with the rise in interest rates, I'd imagine you're right and housing prices should soften a little. 

Lastly, unless it's a fixed loan and not a line of credit the rates will rise in the next year(s).  

My credit is good (over 700 and rising) and I only owe $130,000 on what would (after renovation) be worth close to $300,000 or possibly a bit more.

It's BS.Early to bed, early to rise, makes a man healthy, wealthy, and wise.Warren Buffet doesn't follow the Morning Miracle.