This is where rehab loans come into play. These loans serve to aid investors who do not have much cash and want to renovate several real estate properties at the same time. If you are a real estate investor, read on to find out about the main types of rehab loans you ought to know about.
If you are already an owner of a home, you can tap into that property’s equity to finance your renovation work on your new real estate property. An investment property line of credit works in a similar fashion to a home equity line of credit (HELOC). You can borrow a percentage of your home’s equity and keep on using it repeatedly as required.
You need a small debt-to-income ratio, a good credit score and equity in the real estate property to ensure that you qualify for an investment property line of credit.
Home improvement loans have short repayment terms and exorbitantly high interest rates. In stark contrast, the FHA insured 203(k) loans offer longer repayment terms and lower interest rates.
The home’s rehabilitation cost should be at minimum $5,000 for you to avail of these FHA 203(k) loans. Moreover, the total value of the real estate property must also be less than or equal to the Federal Housing Administration mortgage limit for your location.
You must work with a lender approved by the FHA to apply for this loan. The plus point is that there is no income requirement that you need to qualify for, but you must have a credit score of 580 or above to be eligible for an FHA 203(k) loan.
You can go for the hard money rehab loan if you are struggling to find financial assistance. In contrast to conventional lenders, which look at your income and credit score before deciding whether to approve you for the loan or not, hard money lenders tend to base their final decision on what sort of collateral you can provide. If your credit score is less than satisfactory but you have real estate property (that is of considerable value) to serve as collateral, a hard money lender will be more inclined to work with you.
Hard money lenders will look at the real estate property’s after repair value (ARP) when determining the amount of your loan. Hard money lenders may loan you up to 75% of the property’s after repair value.
The rates tend to differ from lender to lender. Compared to other financing options, hard money rehab loans have shorter repayment terms and higher interest rates. However, they disburse these loans quickly, and you could get the money in a mere couple of days.
With the exception of hard money rehab loans, lenders will typically expect you to fulfill the following requirements in order to qualify for a rehab loan.
• You should have a credit score of at least 580 if you are applying for an FHA 203(k) loan.
• You should have a stable income.
• Lenders also look for borrowers who have prior real estate experience. In other words, you should have flipped a few estate properties on the market and generated a profit.
Many lenders and organizations, including online lenders and reputed banks that specialize in investor loans, offer rehab loans.
Rehab loans can help investors with fixing up and flipping real estate and purchasing rental properties that require little work to restore them to their original condition.
The prime advantage of rehab loans is that they offer investors the option of a short-term loan swiftly approved, and facilitate both the renovation financing and the purchase of a house in a single loan.
“Original article can be found at Forbes.com”