Can I use a conventional loan for a fixer upper investment?

Question

NOT looking for a hard money loan (so I guess that I should assume that no one will answer this).

I don’t want to pay astronomical fees for a HML especially if it takes longer to fix up for whatever reason. Is there any way to do a conventional loan on a fixer upper property and somehow fund the rehab costs simultaneously without getting a partner? I’m talking about getting some type of loan somehow.

I have 25% for the down payment.

This would be for an investment property.

I currently have a FHA on my primary residence. Not sure if this would affect anything.

Shaun Weekes · Answer

Look up Fannie Mae homestyle.  This is Fannies rehab loan.  For invest properties you'll only be able to do 1 unit properties.

I hope this helps.

Alex Russell · Answer

There are some lenders that give the rest a bad reputation. There are some very good local lenders out there that do not have all the "red tape" as most do and are not as expensive as you may think. Even though you are not looking for a hard money loan, it may be your best option to leverage your money.

Frank Greg · Answer

@Erik BrowningIn Mike's initial post, he stated he currently has an FHA loan on his primary residence and is looking for non-HML funds to finance an investment property/rehab. The products you suggested... VA, USDA and similar products.... typically have explicit restrictions on use of funds for your personal (primary residence) and not for investment purposes.

Billy Daniel · Answer

We've used 20% down commercial loans.  They are interest only for 12 months and based off of ARV.  They've worked out great for us and sound like something you are looking for.  No real restrictions on them either.

I recommend a face to face with a local lender!

Jacob Garcia · Answer

No need to apologize. This was helpful to me and my team, thanks!

Erik Browning · Answer

@Mike Schorah he following programs below are each of the 4 types of ways to get renovation loans for each of the most conventional vehicles. Conventional, VA, USDA, and FHA. You can wrap the repairs into the financing, however each program has guidelines and specific details that must be accounted for when doing so. It's best to work with a lender or investor that has used these in the past. I used the VA reno loan myself. The conventional avenue is the best priced at the moment however (July 2022), VA is too expensive today.

VA Renovation Loan: Eligible for a 0% down Purchase price. Although highly underutilized by the veteran community, a solid option to get into RE Investing as a veteran/active duty is to use the VA Renovation Loan. Identify a property that needs work on the MLS and purchase as a primary residence (which enables the best possible financing terms) - move in & make repairs (that can be financed into the loan). The VA Renovation loan requires you hire contractors to perform work on the house that you must coordinate. You must essentially be the quarterback for the whole operation and it allows you to manage the entire process. The lender will push you to deliver results based on timelines as set forth by the guidelines. You gain a ton of experience while also having a safety net of other parties interested in the completion and success of the purchase/renovation. This loan is acceptable for a multifamily purchase as well, up to 4 units.

FHA Renovation Loan: Similar to the VA Renovation Loan, FHA offers 2 types of Renovation Loans that fall under its 203(k) product: Standard and Limited. The main difference is that Limited = repairs less than $35k. Standard = Repairs greater than $35k. Standard 203(k) requires a HUD inspector to sign off on the repairs, a Limited 203(k) does not. Like the VA Renovation, you will quarterback the entire renovation process and you will have other parties pushing you along to meet deadlines. The repairs can be financed into the loan. Additionally, you must live in the property as a primary residence - which enables the best possible financing terms. The only downside to this is the $10k the investor has to put into the deal. FHA loans require 3.5% down, in addition to closing costs.

Conventional Renovation Loans: The conventional channel also offers a Renovation product with guidelines from both Fannie Mae and Freddie Mac, where the repairs can be financed into the loan. These are called HomeStyle, HomeStyle Limited, CHOICERenovation, and CHOICERenovation Limited. Both Limited options have a $25k Max on repairs, while the standard versions have no max renovation budget ($50k for manufactured homes).

USDA Renovation Loan: Much like the VA, USDA is a 0% down loan. This too, has a renovation product but the structure of it is still in the works with a couple lenders. The repairs can be financed into the loan. The best thing about the USDA loan is that it's open to everyone and you don't have to be a veteran. This loan type, however is very specific about income, property type, and property location however. Each county in the US has a max allowable income limit that the investor can make. Being that $50k is the investor's income, they will likely qualify in any county. The property type must meet the requirements of the guidelines, as well as the allowable locations in the US, located on this map: https://eligibility.sc.egov.us...

Erik Browning · Answer

@Frank Greg you’re right, I must have glossed over the investment line. Thanks for pointing that out

Frank Greg · Answer

It's natural to want to get the lowest rate feasible when looking for financing. But, the most fundamental concept in finance has to do with 'the theory of risk and reward'. In this case, the higher the default risk on the instrument or loan (from lender's perspective), you should expect a higher than normal or conventional rate. Its like investing in treasury bonds or CDs, you get a different rate (due to the lesser default risk) than if investing in corporate bonds. Different risk characteristic for the instrument. Funding flips is a very risky adventure. So it's naive to expect anyone who knows what they are doing to offer conventional rates on a rehab, just not rational. There is a reason why many banks don't offer rehab loans on investment properties at any rate. You can get conventional rates when refinancing the project (after completing the rehab) as its a lesser risk for the lender and a transaction and product that have some familiarity and experience with.

Can I use a conventional loan for a fixer upper investment?

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