Loan for purchase rehabilitation real estate investors.
There are great opportunities for real estate investors in today’s market. This is the best market for real estate investors of our life. Unfortunately, financing is not available as it has been in the past. There are financing options for purchase and rehabilitation projects for real estate investors. Whether you are investing in commercial multi-family housing or residential investment property, there are lenders to finance the purchase or refinance investor rehabilitation projects. Since there is no secondary market for this type of financing, your deals will fall into one of two categories. Your deal will be non-conforming investor rehab financing or hard money rehab financing.
Rehabilitation loan for non-conforming real estate investors.
Rehabilitation loans for conforming real estate investors do not exist. Conforming means there is a secondary market that will buy these loans on Wall Street. The secondary market would have established criteria that all projects would have to conform to. Since this market does not exist, the first category of loans is considered non-compliant. Any nonconforming investor rehabilitation loan financed herein must meet similar guidelines as conforming mortgages. Whether commercial or residential, these loans would meet the guidelines like all other loans, except that they require major rehabilitation and are investment property. This means that the borrower, the real estate investor, would need good credit, verifiable income, the ability to repay the loan, an acceptable down payment and reserves, and top licensed bond contractors to do the rehabilitation. The advantage to non-conforming real estate investor rehab loans over hard money loans is that the rate and fees are substantially lower. The downside is that there are many more qualifying criteria and it takes longer to get financing. But if you qualify and have the time, it may be to your advantage to get a non-conforming rehab loan instead of a hard money real estate investor loan.
Hard money loans.
Although the rates are much higher with points required from 4% to 10%, hard money loans might actually be more profitable for real estate investors than non-conforming investor rehab financing. First of all, these loans are usually funded in 2-3 weeks. Second, the scores are much lower and therefore you can make more loans. You may only qualify for a hard money loan when you don’t meet the criteria for a nonconforming rehabilitation loan. As such, you have no choice.
Qualifications to obtain loans for non-conforming and hard money investors.
Both programs require you to purchase a property whose value after rehabilitation is 65% or less. Both programs require you to have an acceptable exit strategy to repay the lender. Non-compliant rehabilitation financing programs will always require a down payment of at least 20% of the total purchase and rehabilitation costs. Hard money rehab financing programs may or may not require a down payment. Both programs will ensure that the contractor or investor has the experience and sometimes the license to complete the project. So if you have the experience, the property, the exit strategy, and the assets, you can make a lot of money buying and rehabbing investment properties.