Should I Get A Conventional Loan?

Question

This question may have been answered elsewhere but I’m not seeing it. What would be the issue with getting a conventional loan, rehabbing, renting, and refinancing? Is it simply that most off market deals require cash? Or are there obstacles with conventional financing that I should be aware of? I have a deal I’m considering that I should have plenty of time to get a conventional loan and would prefer not to carry the risks of hard money.

Sam Bannister · Answer

Could I just get that loan then refinance into conventional with fixed rate when I’m done with the rehab?

Tom S. · Answer

@Sam Bannister  You can also consider smaller banks or credit unions, that can extend purchase + rehab financing all in one loan, with rates similar to conventional.  Look for banks that keep their loan "in-house", which means they make their own lending rules and have more flexibility, especially for houses in disrepair.

Keep in mind the loan will prob be variable, as it's more of a business/commercial loan.  Some of the deals I've been getting are 4-5% interest fixed for 5 years then floating with prime.  15 or 20 year terms.  0 points and maybe $1k documentation fee.

Good luck!

Kristen L Garner · Answer

Another thing to consider - the condition of the home.  You can still buy a "fixer-upper" with a conventional loan, but if the home is in need of structural repair or is uninhabitable you may have troubles qualifying (depending on how the appraisal comes in).  But if your deal is in disrepair, FHA 203k rehabilitation mortgages allow you to combine both the purchase and renovation of the property into one long-term, fixed-rate mortgage. The only catch with FHA 203K is that you must fulfill FHA's residency condition...meaning you'll need to occupy one of the units yourself as your primary residence for at least 12 months.  But if you buy multi family properties you can rent out the other unit / units. Hope this helps!

Joe Splitrock · Answer

There is two issue. The first one is waiting period for refinancing after closing on a conventional mortgage. The other issue may be cash. If you get a conventional you will need 20% down payment plus rehab money. Hard money lenders will give you higher LTV up to maybe 100% and finance rehab costs.