Rhab Financing for free and clear property

11 Replies

I own a single family property free and clear that needs repair before I can rent. I'm seeking financing to accomplish this goal but I am unsure of my options if any. Doc's not strong enough for traditional loans and private financing seems geared to selling. How do I tap into the equity in this situation? 

It depends on your location. Not all lenders loan money in every market. If you are in a large enough market, you should be able to find financing for your property if you have enough equity.

My advice would be to promote your need for a loan with your location. This will alert money lenders that you have an opportunity for them to fund.

You should also do a proactive search. Start online. And Ask real estate agents for names of lenders.

Those lenders may not be the right kind of lenders, but call them anyway and tell them what you are looking for and if they know of any lenders who do the kind of loans you need.

@John Marion  Thanks for your reply to a thread I'm following. Perhaps you could help me in a similar question:

I've been looking for a list of property condition requirements a SFR must meet to qualify for conforming mortgage financing. The only resources I've found are Fannie/Freddie guides that are very lengthy yet unclear in certain regards. I know there are requirements like a working stove and heater (here in Florida a working A/C unit would be more practical!) but I'd like some sort of checklist to use as a starting point for the rehab-intensive SFR I bought in cash a few months ago. Or perhaps it's mostly based on appraisal...?

Could you point me towards a list of minimums for a property to qualify for a conventional, conforming loan so I can shop it to a much larger pool of lenders?

Thanks John. I started contacting lenders and asking as many questions as I could. As you said most were not able to help me directly however, I did learn of the Homestyle renovation option offer by Fannie Mae. Also a local credit union has a construction loan option. 

I used to buy them with cash and the do home equity loans on them to do the work, the process is much simpler on a HELOC than for a regular mortgage, or it was back in the day.

If your credit score sucks you'll need to go private money. Hard money guys you find online are pretty ridiculous on their terms, and even worse if its not a purchase. Pretty easy sell if there is a lot of equity. "Hey, I need $20k for 4-8 months, I'll pay you back $22k. It will be secured against this house worth $80k" That pitch is especially effective if you get around other investors. The guys actually doing deals go up and down on cash, if you catch one with a fat bank account, they'll be in the mood to lend. I do when I'm cash heavy.

Regarding "Or perhaps it's mostly based on appraisal...?" Yes. See also B4 (Underwriting Property) of the FNMA Selling Guide. It's the exceptions that will get a property hung up in underwriting... like checking 'Illegal' under Zoning Compliance or anything under "adverse site conditions" or "adverse conditions".


Thanks Darrell, you just open my mind to a whole different way of looking at private money. Never thought to approach private money to fund the construction.

BTW is private money and Hardmoney the same? I use the terms interchangeably but I'm starting to think there different.

@Chris Martin  Thank you for the helpful info. You touched on my concern with the property; it had lots of improvements made to it without permitting and it'll be noted on the appraisal. Enclosed porches and converted garages from prior owners done without required permits are common in my part of Florida, and I've been told that it's hit-and-miss as to whether it'll become an issue.

@Darrell Shepherd Reading other threads alerted me to the fact that HELOCs are tough to get on investment RE when it'd be in 1st position. I suppose it's due to the higher risk of default, more due diligence necessary, and foreclosure litigation falling entirely on the shoulders of the HELOC lender. Have you (or anyone else) successfully taken out HELOCs or loans on unencumbered investment property in the past few years? Any advice to do this besides just calling as many lenders as possible?

Fallback plan: If I can't do a 1st mortgage on the unencumbered property with permitting/condition issues I may get a home equity loan on a separate property I own. That separate investment property only has a 1st mortgage at 40% LTV with two years of rock solid, provable rental income. That'd free up another $40k at 75% total LTV which would add to my pile of low interest cash on hand for when deals pop up.

@Korey McMeekins ,

Private money usually costs a lot less than Hard Money.

Friends, Relatives, one of your Doctors, etc., might be interested in making a short term loan. People who have $$$ in a Savings Account and or a CD at the Bank, are loaning the Bank money for almost free. Hard Money Lenders in Ct., are charging anywhere from 9-12% plus the points.


@Andrew Schaefer : I'm not aware of a specific list of things that the typical appraiser would look for on a conventional loan other than the house must be habitable. 

Having said that, the last time I meet up with an appraiser for a conventional loan purchase of a rental property, she pointed out a few pieces of rotted siding but failed to mention the more serious safety issues of the rotted deck that was attached to the house by the rotted siding and also failed to mention that the stairs and railing were loose and rotted too.

An FHA or VA appraiser would have mentioned health and safety issues but the conventional appraiser overlooked those issues.

@Andrew Schaefer An appraiser friend of mine told me this regarding whats required, Can I sleep there? Can I get ready for work (shower, Toilet, and sink working)? Can I cook a meal? FHA and VA have more specific guide lines.

@Andrew Schaefer @John Marion @Loren Davy

For specifics, the best place I know of is the municode for your jurisdiction. For example, https://library.municode.com/HTML/13893/level4/COOR_CH5BUCOREAC_ARTVIIHOCO_DIV2MIST.html

which describes detailed sections on what a code or building inspector (or potentially an appraiser) will reference if they cite your property (cite your site).

(go to https://www.municode.com/ then under Code Library, select your state, then your city/municipality)

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