Investment Rehab Loan Guide
Your Guide To Investment Rehab Loans
If you’re a real estate investor that is seeking funds to purchase and remodel a residential or commercial property, investment rehab loans are an option you’ll want to consider. These loans can combine the initial cost of a property along with the cost of renovations, or “rehab.” Funding is generally available quickly, and in many cases, borrowers can only pay interest for some time.
Typically, these types of loans are used for short-term investments. It’s common for an investor to seek a loan like this when they’re hoping to fix up a property so that they can flip it for a profit. Of course, it’s possible to secure a rehab loan for a long-term investment as well. In these situations, loans are typically used to finance renovations for rental properties.
What Rehab Loans Cover
A rehab loan combines the funds needed to purchase a property with the funds needed to renovate that property. The size of the loan will vary based on the condition of the property, the type of loan that is being secured, and the necessary repairs. For example, if you’re seeking a hard money loan for a property that is in fairly good condition, you may be able to secure a loan that will cover as much as 90% of the total property purchase price.
It’s rare to receive a rehab loan that does not require you to put some money down. The right loan can make the costs of investment far more manageable, but if you don’t have other investment properties that you can use as collateral, you will have to rely on your personal savings. It’s not unusual for investors to have to cover 25% of the property’s expected ARV ratio out of pocket.
Besides, you should be aware that certain rehab loan providers will require you to initially cover the cost of your renovation work. Once the renovations have been paid for, you’ll be able to submit invoices to the lender so that you can be reimbursed. This protects lenders from situations in which borrowers default on their loans.
The Different Types Of Rehab Loans
The majority of rehab loans fall into one of three categories. There are hard money rehab loans, Investor LOCs, and permanent rehab mortgages. The type of loan that is best for you will vary based on what you’re looking for.
Hard money rehab loans are offered by numerous lenders. It’s possible to secure a smaller hard money loan or a larger one. Because there are so many different options for hard money loans, there are a variety of terms and interest rates available. Hard money loans are designed to be short-term, which is why rehab loans like this are best applied to fix-and-flip projects.
These loans tend to have higher interest rates than the typical loan. This is because the loans are designed to be paid off quickly and because there is risk inherent in a renovation project. It’s common for interest rates to range between 7 to 13%.
Investor LOCs, or lines of credit, are ideal for borrowers that regularly take on renovation projects. These loans provide investors with a revolving line of credit that they can use to purchase and renovate new properties. In most cases, a line of credit like this will only be available to investors that have existing properties that they can borrow against.
When investors have a revolving line of credit, they can draw against their credit line when they need funds and make payments as necessary. This is a highly flexible option that will ensure that investors don’t miss out on essential opportunities. After a line of credit has been established, an investor can continue to use the same line of credit for future rehab projects.
Permanent mortgages are the best option for long-term investment rehab loans, in part because there are so many options available. While standard home mortgages are a common option, it’s also possible to obtain a rehab loan from the Federal Housing Administration. If you’re planning at least $5,000 worth of renovations, FHA 203(k) loans are an excellent option. Another choice worth considering is a HomeStyle Renovation or HSR loan. These loans are available to investors renovating owner-occupied properties and can be used to cover rehab expenses for up to four different properties.
The Steps To Obtaining A Rehab Loan
There are many things that you’ll have to do before you can secure a rehab loan and use those funds to renovate a property. Before you do anything else, you’ll need to weigh your options and decide what sort of loan you would like to obtain. Once you’ve decided which type of loan you’ll want to apply for, you should see if you can get pre-approved for a loan. Both mortgages and hard money loans typically have some sort of prequalification process that applications can use to determine their costs and the amount of money they will be able to secure.
During the prequalification process, applications will typically be asked to undergo a credit check and provide bank statements. Borrowers will also have to answer questions about themselves as well as questions about the property they are planning to purchase. Prequalification isn’t a guarantee that an application will be approved for an investment rehab loan, which is why investors will have to formally apply before they can move forward with a property purchase.
After an investor has been approved for a loan, they will receive their funds, which means they can purchase a property and make the desired renovations. From that point, investors have many options. They can sell the property and use those funds to pay off the loan, or they can rent out the property and use the income they receive from their tenant to cover loan payments. Investors will have plenty of options once they secure the funds that they need.
Alternatives To A Rehab Loan
Not all investors will be able to obtain rehab loans. It can be difficult for an inexperienced investor to qualify for this type of funding. Thankfully, there are many alternative funding options that would-be investors can also explore.
If an investor already has equity in a property, a home equity loan is a potential option. These loans don’t have the same flexibility that rehab loans provide, but they are a way to secure funds for repair work. A home equity line of credit, or HELOCs, is a more versatile option for house flippers.
Refinancing the mortgage that you already have is another option that’s worth considering. By refinancing, you can secure funds that will allow you to cover the cost of renovations. As an added benefit, cash-out refinancing usually means lower interest rates. If you have strong credit, you may be able to secure a personal loan from a bank or a private lender.
If you’re planning small-scale repairs, you may be able to use a credit card to cover a lot of your expenses. You could even save money and pay for renovation work with cash. This isn’t going to be a possibility for a quick fix-and-flip project, but it is an option for properties you’re planning to hold onto.
Investors should find out more about investment rehab loans and how they work so that they can make informed decisions about borrowing and purchasing. If you have a strong understanding of the types of loans available to you and how these loans work, you’ll be able to obtain funds and purchase investment properties that will help you to increase your worth.
What Exactly Is A Loan To Flip A House And What Are Its Benefits
Are you thinking about flipping houses because if you are, then you should get a loan to flip a house which are also called an investment rehab loan. You might have a few questions, such as what this type of loan is, how to get one, what the interests rates are like and who should actually get one. You might also be wondering about the benefits of loans for flipping homes. If you are, then continue to read on.
What Is A Loan To Flip A House
These loans are short-term financing options given to those who want to buy a piece of property and then resell it after fixing it up. Other names they are often called include flip loans or fix and flip loans, as well as fixer upper loans. For example, if you see a house that is in poor condition and it’s for sale, then you could get a fixer upper loan to purchase it. Then you can fix it up and put it back on the market.
Bear in mind that these types of loans are not conventional mortgages. They are very different because mortgages are long-term loans given to those who want to buy a house to live in. Loans to flip homes are exactly that, loans to buy a home, fix it up and then flip it.
How Do You Get The Loan
There are several ways to obtain a fix and flip loan, but the chances are of getting approved by a traditional source like a bank are slim. This is because banks tend to provide long-term loans and they deem fixing up properties as risky activity. Banks do offer these loans, in some cases.
However, the best place to turn to a loan for flipping houses are lenders such as Neal Funding. Such companies offers business funding, and flipping homes is considered by many lenders to be a business activity. As for how to go about applying, you can usually apply right online or via the phone if the lender allows.
What Are The Rates
Generally speaking, the rates on loans to flip houses can greatly vary from one lender to the next. However, these types of loans do typically have higher interest rates than traditional loans because they are short-term financing solutions and they are a bit riskier than traditional forms of lending. There are a lot of factors that determine what your interest rate will be on a fixer upper loan.
How Do They Work
The way they work is a lot like traditional loans, which means you apply for a fixer upper loan with a lender. If you’re approved, then you’ll receive your funds, which can be used to purchase the house you have your eye on. Then you will be required to make payments on the loan, and you’ll know when to make your payments because everything will be outlined in the terms and conditions.
Who Should Get One
People involved with the real estate industry should consider getting this loan. The same goes if you’re an investor or you’re simply looking to get involved in a new business. Experienced and novices alike should get a fixer upper loan.
The truth is you don’t even need experience in regards to fixing up homes and reselling them. If you have always wanted to flip homes, then you can apply for a fixer upper loan. As long as you meet the criteria set forth by the lender, then you should have no problems getting approved for the loan.
The Benefits Of A Loan To Flip A House
There are several benefits. These loans are much better than traditional ones. That is because:
One of the best things about fixer upper loans is how fast you can receive your funds. The entire process from start to finish is much faster than obtaining a loan from a bank. The length of time it takes to close on a fixer upper loan depends on several factors, but generally speaking you can have everything done within 30 days or even within 14 days.
This is a major benefit. Homes that are sold as is or that are obviously fixer uppers, tend to sell quickly. You don’t want to be waiting around for approval on a loan because the longer you wait, the more of a chance that someone else will buy it.
- Easy Approval
All lenders have criteria that their applicants have to meet before they approve them for a loan. However, those who provide loans for flipping homes are more lenient because they know what the home being bought is for, flipping. In other words, the lenders know the homes aren’t exactly in the best shape, therefore they won’t want to know much about the property.
- Value Of House Doesn’t Matter
The value of the house doesn’t matter either. As previously mentioned, houses that are going to be flipped tend to be in bad shape, therefore the value isn’t really of major concerned to the lender. When you purchase a house and you apply for a mortgage, this isn’t the case.
In fact, the strength of the deal is what the lender will care about the most. If they think there is profits to be made, then they’ll likely approve the loan. They are thinking about the future value of the home and not what it’s currently valued at; At least in regards to making a decision to approve clients for a fix it and flip it loan.
- Buy Any Type Of House
Another good thing about these loans is that you can buy any type of house. Whether it’s a single family home, a two-story house, a bungalow or any other kind of home, you can buy it with a fixer upper loan. You are not limited to a specific piece of property.
- Credit Isn’t An Issue
Your credit will not be a major problem when applying for loan to flip homes. There are other important factors that a lender will take into consideration, but credit is not near the top of the list. Even if you have bad credit, there is still a chance you could be approved for a loan to flip homes.
- The Funding Amounts
The funding amounts for these loans do vary from lender to lender, but you can find these loans available from around $60K to all the way up to millions of dollars. If you come across a mansion that is in bad condition and you want to flip it, then go ahead and apply for a million dollar loan or more. The same goes if you find a cheap house for $60K or less. The bottom line is it doesn’t matter how much the house you’re looking at is on the market for, the chances are there is a lender, such as Neal Funding, that offers fix it and flip it loans in that range.
Do you want to obtain a loan quickly, so you can flip a house? Do you want to have a good chance of being approved for a loan and all of the other stuff mentioned above? Of course you do, which is why you should apply for a fixer upper loan.
Do you want to flip houses and potentially make good money doing it? Of course you do, but you will want to look into getting a good rate on a loan to flip a house. The sooner you get a loan, the sooner you can start flipping homes. Just remember to apply for a loan with a reputable place that is known for good interests rates and good customer service.