Fixing up a Property to Sell? Here are 3 Popular Rehab Loans

2 Replies

Are you thinking of fixing up a property this year to sell? You may need a rehab loan. So, what options are available for financing for those seeking rehab loans? The 3 most popular options for rehab loans are:

1.FHA 203k Rehab Loan

2.Home Equity Line of Credit or HELOC

3.Hard Money Rehab Loan

Unless you're a non-profit or you are looking to fix up the home you live in, you won't be eligible for an FHA 203k rehab loan. Real estate investors need not apply! And if you think you're getting a low cost loan by going FHA, think again. There's 0.55% ongoing for insurance, loan fees or points range from 2.75% to 4.75%, definitely count on an appraisal fee, ongoing inspection fees, and other junk fees.

HELOCs aren't available as readily as they used to be, in fact, most banks no longer offer equity lines of credit anymore. And for those banks that do offer HELOCs, most won't lend on investment properties. So unless you live in the property, forget about getting a HELOC if you're seeking a rehab loan for an investment property.

This leaves me with the last option: a hard money rehab loan. This option is by far the fastest and easiest loan to qualify for. Although the cost of a hard money rehab loan may be higher than a FHA 203k rehab loan or a HELOC, if you've got a need for speed, a hard money rehab loan is the only way to go. If you've never obtained a hard money rehab loan before, the requirements are less stringent than traditional loans. And if you do need a rehab loan in a hurry, take a minute to read a blog post we wrote recently on this topic called, 6 Items You Need to Close Your Rehab Loan Fast.

Posted by Corey Curwick Dutton

What about a straight construction loan?

Hi Corey-

I would like to clear up the information above on the FHA 203k program. You are correct that it is for owner occupied only but that does not mean an investor could not buy the property and live in one unit while renting out the others. I have had many clients do this and creat positive cash flow. It does not say anywhere that after a year or two you could not refinance this property into a conventional loan and do it again. If someone is looking to buck the system- than YES- no need apply but for an investor who is looking to get started and has the ability to live in the property it is a great low down payment option.

As far as the expense- yes it is expensive but its cheaper than hard money by a long shot and it has low down payment 3.5% of the acquisition and renovation and rates are in the mid 4's. The fees are much lower than what you stated above and they are financeable- that is a very attractive option to the savy investor.

Using the 203k I have helped many clients also gain 20,30,40, 50 as much as 100K in instant equity- there are not many options out there that can offer these features.

I just wanted everyone to understand the program and what it can truly do.

Good luck to all! - Jeff