Rehab Loans for Investors – Learn the Basics from the Experts

More and more people are taking advantage of rehab loans to turn mediocre properties into amazing houses. Investors may find that they can do the same with property that they are interested in. However, not just anyone can get rehab loans for investors. To take advantage, potential homeowners need to know the basic of who can get these types of loans, what type they can get, and what the requirements are. So, going over a lot of the fundamentals of these types of loans would certainly be helpful.

Investors should always know the ins and outs of the loans they take on. When we oversee rehab loans in Maryland, it is important to explain the options in-depth so that there aren’t any lingering questions. Here we will go over a lot of the essentials about rehab loans so that investors will feel comfortable making decisions regarding this type. In this article we will go over the following:

• What is a Rehab Loan? – Let’s first define what it is exactly.
• Types of Rehab Loans for Investors – Then we will go over a few of the most common types that people consider.
• Looking for a Rehab Loan in Maryland? Contact Us! – Finally, we will touch on how MHML could come to the rescue.

What is a Rehab Loan?

First, let’s explain the basics of what a rehab loan is. Rehab loans are real estate loans for residential homes that are designed to help people both buy and fix up a home. Rehab loans for investors provide a good way to finance renovations (or upgrades) on existing homes. They do this by providing funds for purchase and repairs with one loan.

There are a lot of initial requirements to be considered for these loans. Generally, borrowers must have a minimum credit score of 500 to qualify for this type of financing. Also some lenders may have additional regulations, for example, a maximum debt-to-income ratio requirements or special down payment conditions.

As a requirement, home buyers need to prove that they will reside in the home being purchased and repaired. So while they can be a rehab loan for investors, it doesn’t suit all investors in situations in which they do not plan on residing in the house after the renovations are made. For others who plan to “flip” property, it could be a valid option.

Types of Rehab Loans for Investors

There are a number of different types of rehab loans for investors. It would be helpful to go over a brief overview of each common type so that it is clear what type is likely an option for your particular circumstance.

FHA 203(k) Rehab Loan

An FHA 203(k) loan is a federally-funded government loans, otherwise known as 203(k) loans. All FHA loans have certain requirements, such as meeting debt-to-income and credit rating conditions. The loan is based on the after-repair-value (ARV) of the home. These loans offer low down payments, though they are intended for first-time investors only. They also require that the borrower live in the house for at least one year after purchase.

Fannie Mae Home-Style Loan

A Fannie Mae-style loan is another federal government loan that typically involves a higher down payment, while the borrowing is limited to 85% of the ARV. They have a number of the same requirements as FHA loans. One difference is that there may be limitations on the contractor that is hired to do the renovations and the lender has to review all plans and conduct regular inspections of the work being completed.

Both FHA and Fannie Mae home-style loans come with government assistance, which means that there is also a rigorous and lengthy application process and short timeframes for construction. Both of these may be a hindrance for certain investors.

Hard Money Loan

A hard money loan is another rehab loan for investors, in this case, one that is issued by private lenders instead of banks or credit unions. They can take on more risk than traditional lenders, but in turn, that comes with a higher interest rate and fees. These are often used when there are fewer options for financing and so a private lender is needed to underwrite the loan. These loans are secured by the property value itself and not the borrower’s credit record.

In the case of hard money loans the loan-to-value (LTV) ratio is typically lower than 80% of the property value. However, some lenders will base the loan on the ARV. One advantage of hard money loans is that the application process can be completed quite quickly and in a simpler way. That might work well for many seeking rehab loans for investors.

Looking for a Rehab Loan in Maryland? Contact Us!

What type of rehab loan you acquire is an important part of the process, while managing and maintaining it properly is also very important. If you don’t have time to keep up with each of your rental properties, consider hiring property management to ensure you’re providing your tenants with the best experience possible.

Consider Bay Property Management Group for comprehensive rental management services. And if you’re in Maryland, consider MHML for your rehab loan needs. Both are there to walk you through the lending and property management process. We’re here to help!