Rehab Investor Loans
The strict requirements for investors and people just looking to get their foot on the property market means that the private real estate lending has become an increasingly popular option.
Also referred to as private hard money funds these are provided by private investors or private companies who are willing to lend money for a specific purchase.
This type of lending is a suitable option for homebuyers who know they will struggle to qualify for a conventional mortgage due to their credit history or level of debt. Self employed people may also encounter problems qualifying for a traditional mortgage if their income is not steady and fluctuates greatly at times.
It is much easier to qualify through the private lending route and the approval process is much shorter. This is normally completed in the space of a fortnight as opposed to thirty to forty five days for a regular mortgage. Whilst it is must be noted not everyone will be successful by taking the private lending option, the chances of being accepted are still generally quite high.
Fix and flippers tend to favour this route as, mentioned previously, the repayments periods are very short, (normally twelve to twenty four months) which fits into their plan to sell on the property quickly using it as part of their investment project.
Regardless of how good your credit history is, most conventional mortgages will not approve loans that require extensive work. If a home has been left vacant for a lengthy period of time significant repair work may be required, for example the plumbing may need to be redone, or the residence may have fallen victim to vandalism. This is where the private lending option also becomes more appealing.
Broadly speaking the largest rehab loan amount offered by private lenders is equal to 80% ARV (after repair value), with quite a few offering less. The more experience the applicant has had with rehabs and better their credit score is the higher the ARV will be. In simple terms if a company (or private individual) offers an ARV of 75% this means they will finance up to 75% of the expected valued of the property after renovations are complete.
For the investor this means they should expect to cover at least 20% or more of a properties ARV with their own money. It should also be noted that some lenders require that people pay for the renovation costs up front and then reimburse the investor after. This is mainly done as a safeguard to the lender, who naturally would want some guarantees the applicant will not default and will honour their agreement.
Taking all this into account, some things for the applicant to bear in mind before applying would be, are they comfortable with the short repayment timeframe, and the higher interest rates that come with this type of lending? As with all investments, it is important the individual does all his or her research before committing to such a project.
The rehab investor loan is perfectly suited for someone is purchasing a rental property that requires a little bit of work done or a fix and flipper, looking to get in and quickly with a healthy profit in their pocket.
To summarize they offer short approval times, interest only repayments and they consolidate the cost of the house and the renovation costs into one simple payment.