There are two types of residential investors rehab loans: the private money rehab loan and the permanent mortgage rehab loan. The permanent mortgage rehab loan is offered by Fannie Mae and other loan institutions and has specific owner occupancy requirements. These types of loans are very rigid and have specific rules, such as you can only use the loan for one property at a time, so these are not very suitable for residential investors who wish to renovate a property and resell it. The amount of the loan is normally based on a percentage of the property’s purchase price, or LTV (loan-to-value) ratio. Therefore, this article will be devoted to explaining the private money rehab loan, sometimes called hard money rehab loans.
The Benefits of Residential Investors Rehab Loans
The amount of money you can borrow with residential investors rehab loans is based on the ARV, or after repair or renovation value. That means the lender sends an appraiser to look at the current value of the property and go over the plans for renovation to determine the ARV. The lender typically authorizes a percentage of that appraised value. Most lenders will not loan more than 70 percent of the ARV, but Red Door Funding will lend up to 100 percent of the ARV, though there are other requirements. First-time borrowers might not be able to get 100 percent.
Residential investors rehab loans are based on trust and often a previous relationship between the lender and borrower. Obviously, someone who has borrowed from the lender frequently and consistently repaid would be eligible for more money than an investor remodeling a property for the first time.
Some lenders allow loans to purchase and renovate, while others insist you own the property, before giving you a loan for the renovation. Red Door Funding requires you have clear ownership, with no other liens on the property.
Some borrowers are scared off by much higher interest rates and fees, compared to mortgage rates, but they should consider mortgage rates are based on a long-term, 5- to 30-year commitment. Residential investors rehab loans are short-term. During the loan time frame you will only pay the interest, with the principle due upon resale or refinance.
Qualifying Residential Investors for Rehab Loans
Since Red Door is a private lender, the pre-qualifications to borrow money to rehab a property is much simpler than banking institutions, except state and federal mandates, and you won’t have to wait for months to get an answer or the money. Banking institutions, on the other hand, insist on a predetermined credit score and other credit requirements, plus the standard 20 percent down payment. Red Door’s primary focus is the ARV and the reputation of the borrower.
Why Consider Red Door?
Red Door Funding can let you borrow more with a simplified loan application and fewer restrictions. Call the professional rehab lenders at Red Door Funding (832) 539-1099. Send an email with your questions, dwilliams@reddoorfunding.com.