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Rehab lending can be used to help purchase, renovate and resell or flip a property for profit. Rehab lending, or hard money lenders, provide investment money for “fix-and-flippers” and even some long-term investors who wish to repair and keep the property to rent.

How Rehab Lending Makes Sense for VA & FHA Loans

Many loan insurers, such as VA and FHA, have strict requirements for the house condition before they will guarantee a loan for those who qualify. The VA, for instance, has a long list of necessary conditions for homes before they will approve a guaranteed loan.

These preconditions or minimum property requirements (MPR) are made to protect the home buyers from unexpected and often unaffordable surprises. The person who wants to buy a home that does not meet the VA’s MPR can take a short-term rehab loan to make the repairs in order to get a mortgage with a VA guarantee. Rehab lending makes good sense in this case and many other instances as well.

How to Use Rehab Lending to Become a Real Estate Investor

So, you have been working for a contractor as a carpenter/laborer for many years and figure it is time to get out on your own. You found a house that is perfect to buy, fix and flip, but your credit scores are not high, and you no longer have a steady income, since you just started your own business.

Rehab lending could be the answer to getting into the fix-and-flip industry. Some rehab lenders will insist you use a contractor for two or three flips. After you show a capacity for finishing projects and paying back your loans and suppliers, the loans will come easier. Even a first-time loan from a hard money lender with the property as collateral can get approved online and completed within a few days to two weeks.

Will You Pay More for a Loan With Rehab Lending?

Yes and no, you will pay a higher interest rate – 7 to 15 percent – while a 30-year fixed interest rate is around 5. Remember, this is a short-term loan. There’s no prepayment penalty. You can make the interest payment every month and pay off the principle when you flip the property. You will have additional fees, such as appraisals, lender’s and attorney fees, and closing costs, but, in many cases, you can have those deducted from the initial loan.

Another thing to consider – all these fees and interest rates with rehab lending are the cost of doing business, so these expenses could be tax deductible as a business expenditure. It is advisable, of course, to discuss all business expenses with a tax lawyer or tax accountant.

Red Door Funding: “Opening the Door to the Funds You Need!”

When you need a professional experienced at rehab lending, speak to the real estate investment specialists at Red Door Funding, (832) 539-1099. We work with contractors, building supply companies, insurance companies and others in the Houston area to match investors with rehab lending professionals.

Call Red Door or visit us online to start an application here, or send an email to dwilliams@reddoorfunding.com.