Inherited Home rehab funding

5 Replies

Hello, My family has recently inherited a West Texas home from a relative who passed and it's currently sitting empty and I'm looking to get some advice on the best possible way to go about funding the deal. The house is in rough shape and it's in a rural Texas town. Its a 2 bed 2 Bath about 975 square feet. Right now I have the property worth estimated 35k-40k and a very very rough repair estimate of 20k. The house is right next to the new school in town that houses k-5th grades so I’m thinking it shouldn’t be a tough sell and would have an ARV of about 80k if it’s done right. I initially thought of renting it out but I think we would like to just get the cash out to pay off student loans or fund more deals. So, I’m having trouble deciding the best way to fund the rehab. I’ve thought of HELOCs, hard money, personal loans and even funding the rehab myself as I do have the cash on hand to finish it if iit’s in the 20k range. So my question is, how would you go about funding this rehab if you were in the same situation? This would be my first rehab and I plan on getting hands on with it in order to learn more about the process and to get better ideas about rehab costs and whatnot. Any advice is helpful!

Hey Austin,

Do you own your own residence? If so, could get a HELOC on your primary residence?

@Austin Suddreth nice to meet a fellow Texan.  There are 2 methods to solving the rehab item on this home:

  1. Fannie Mae has a specific loan that allows you to rehab a property.  The rehab costs cannot be more than 50% of the value of the property.  It's a 30 year, fixed rate loan and lots of investors use it on non-occupied properties (meaning investment properties).  Not every bank offers this loan type but I might know someone who offers it if you need any references here locally.
  2. Hard Money is also specifically designed for this type of rehab.  A hard money loan will be easier to be approved for but the rate and the closing fees will be twice as high as the Fannie Mae loan above.  Also a hard money loan is only a temporary loan.  So you would have to refinance out of it anyway later.

My recommendation is to speak with someone who can do the Fannie Mae loan and for you to be PreApproved first.  That's when they send you through underwriting first and make sure you are as qualified as possible.  It's free to do so and then you know you can close before spending a dime on anything.

Let me know if you have any other questions.  Thanks!

Brooke, I don’t own a primary residence as I rent. Do you know if it’s possible to do a HELOC on the inherited home since it’s owned free and clear?

Thanks for the reply Andrew, do you know if that Fannie Mae loan comes with any strict requirements such as if the house is habitable or using certain contractors etc.?

@Austin Suddreth your best bet is to conduct the renovations with your capital, get it rented, then do a cash out refinance to take care of student loans and take on more projects.

I say this because it's going to be tough to find a hard money lender to fund a deal under $50,000. Also, most lenders will give you 50-60% cash out refi on as is value, which doesn't do much for you based on the numbers you presented.

When you renovate and get a tenant in there, now you can refi based on repaired value and income generated by the tenant. Usually you can get 60-75% of that appraised value ($80k) with a rental cash out program. You'll get your rehab money back and then some, as well as someone paying your mortgage while growing your equity position on the home as the years go.

Hope this helps!

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