Why You Need to Beware of the 90-Day Rule with Texas Hard Money Loans

Texas Hard Money Loans are a great way to fund a fix-and-flips, but if you’re just getting into investing, it’s important to understand legal guidelines that can impact the sale of the property. One such example is the FHA’s 90-day rule, which prevents buyers from using an FHA loan if you haven’t owned the property for at least 90 days.

Lending options differ depending on what you intend to do with a home, which is one of the reasons why Texas Hard Money Loans are so popular with real estate investors. If you’re purchasing a home to live in, you’ll have a wealth of options to choose from. If you’re purchasing it for a fix-and-flip project, some of those options vaporize. One example of this is an FHA loan. Although you can’t get one as an investor because the property won’t be your primary residence (and you probably wouldn’t want to, but more on that later), those who wish to purchase your rehab might, and so FHA guidelines can impact you regardless.

The Federal Housing Administration (FHA) doesn’t lend money to home buyers, but does insure mortgages through various lenders. They essentially promise the lender that if the homeowner doesn’t make good on their obligations, the lender won’t get stuck with the bill. Because of their programs, even people with poor credit or minimal money for a down payment can qualify for a mortgage. In many cases, this puts homeownership within reach for a broader group of people; those who might not have otherwise been able to get into a home. Typically referred to as the “90-day rule,” the terms state “A property that is being resold 90 days or fewer following the sellers date of acquisition is not eligible for an FHA-insured mortgage.”

FHA Regulations Can Stop People from Buying, But They Don’t Stop You from Selling

The regulations are often referred to as anti-flipping rules, but don’t take this to mean the FHA sees you as the enemy. What they’re trying to avoid is having people purchase homes, do nothing to them, and then turn around and sell them for twice as much a month or so later. However, anyone who resells a property is considered a flipper, and those who invest sweat equity or make a home move-in ready for a family, particularly a distressed property, are doing something good for everyone. Moreover, if you’re using Texas Hard Money Loans to flip, these guidelines will not impact your purchase and they cannot prevent you from selling, even a week after you purchase, but they can stop someone from buying your rehab if they’re intending to use an FHA mortgage.

Assess the potential for FHA buyers and adopt an appropriate strategy to avoid the pitfalls.

FHA mortgages have a place, simply because they do help people, especially those with low and modest incomes. However, homebuyers pay for this privilege. They pay a big portion up front, and then have insurance payments added onto their mortgage each month. Depending on the amount borrowed, it could be hundreds of dollars each month. In other words, if you’re working in a high-income area, you can probably sell your flip without worry about someone needing FHA financing, but if you’re working in a low or middle-income area, you need to plan ahead for this if you anticipated selling your rehab in less than 90 days. You can use Texas Hard Money Loans to span much longer than this, but you’ll want to budget accordingly and make sure you can cover your payments while you wait for the 90-day period to end.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.