Rehabbing a Property? 3 Options for Your Next Rehab Loan

FHA 203k Rehab Loans VS Hard Money Rehab LoansWhether you’re seeking to fix up a property you already own, or you’re buying a property to fix up, loans for rehab are essential for real estate investors. But what type of financing is out there for real estate investors who are rehabbing their investment properties? The most popular choices are: the FHA 203k rehab loan, a Home Equity Line of Credit, also called a HELOC, or a hard money rehab loan.

Only owner occupants and non-profits are eligible for FHA 203k rehab loans. So if you’re a real estate investor with a non-owner occupied investment property, forget about it! And if you think you’re saving loan fees by going FHA, forget about it. FHA 203k rehab loans come with a higher interest rate than standard loans. And if you think you’re saving money on loan fees by going FHA, well, think again. Loan fees, also called “points,” on a FHA 203k loan start at 2.75% and go up from there depending on how much your broker or bank is going to tack on top of the 2.75 points. Then there’s the appraisal fee, the ongoing inspection-related fees, and finally the big one – 0.55% ongoing for loan insurance!

For those who had utilized home equity lines of credit (HELOCs) from their banks prior to the real estate crisis, these types of loans are now extremely hard to get. Many banks who used to offer these types of loans no longer offer them. And for real estate investors with non owner occupied properties, most banks don’t even offer equity lines of credit on investment properties anymore! So what is the best option for financing for rehabs?

Real estate investors who know, tend to go in the direction of hard money rehab loans when seeking rehab financing. Hard money rehab loans are much easier to obtain and fund faster than traditional bank loans. Because these loans come from non-bank sources of financing such as private individuals, the requirements are much less stringent. Although the cost of a hard money rehab loan is typically higher than a standard line of credit or an FHA 203k rehab loan, the opportunity cost of not getting a loan is much higher. And for those who aren’t eligible for an FHA 203k rehab loan, or don’t qualify for a HELOC, there is no option other than a hard money rehab loan. If you’ve never had a hard money rehab loan before, read a post we wrote on this topic called, 6 Items You Need to Close a Rehab Loan Fast.

Posted by Corey Curwick Dutton

3 Reasons You May Need a Private Money Loan This Year

Private Money Loans for Construction Projects

Since the recent financial crisis, more and more real estate investors are using non-bank, private money loans to finance their investment properties. During the period of 2008 to 2010, many banks weren’t lending, and credit in general was tighter than a drum. This opened up the area of private money lending to unlimited opportunities for commercial bridge lenders, hard money lenders, and other private money lenders. In fact, the real estate recovery was largely influenced by the availability of non-bank loans when banks were suffering. Real estate investors have long used hard money loans to finance their property purchases because of their ease of access and their swiftness. Here are just 3 reasons you may need a private money loan in 2014:

1. Chasing Value? More investors are chasing investment properties in second and third tier markets this year looking for value. With most commercial bank lenders focusing on the best properties in only the top tier markets, many non-bank, private money lenders have started following investors and financing their deals in second and third tier markets.

2. New Development or Construction Projects in the Works? Lending may have opened up considerably for some property types, but nowhere is credit still so tight as it remains in new development and construction.When banks are using any reason to say no to these loans, it is so much easier to get private money loans for new development and construction projects.

3. Increased Competition for Loans: CMBS loans maturing this year and increasing in volume in 2015 will no doubt increase the competition for commercial loans all across the board. A large percentage of these maturing CMBS loans may be over leveraged, and thus borrowers needing to refinance may be forced to bring in equity. Because private money loans are sometimes made at a higher loan to value than the typical commercial bank loan, a private money loan may be the answer for a borrower looking for a commercial refinance this year.

These are just 3 big reasons why you or one of your clients may need a private money loan in 2014. If you are chasing properties in less favored markets, or if you are engaging in new development or construction projects, private money loans may be your only option. And with increased competition for commercial loans all across the board, knowing who to go to for a private money loan is critical this year. If you’ve never borrowed a bridge loan before, here are 5 tips for closing your loan quickly. Don’t be left without a chair when the music stops in 2014. Be prepared with multiple options for financing your investment properties this year.

Posted by Corey Curwick Dutton

Real Estate Investors Use Bridge Loans Versus Bank Loans

The Banker's Fate in Lewis Carroll's The Hunting of the Snark (1876)

The Banker’s Fate in Lewis Carroll’s The Hunting of the Snark (1876)

Will the days of bank lending ever return to the years leading up to 2008? In those days, as the old saying goes, “If you could fog a mirror you could get a loan.” But for real estate investors who can’t wait around for banks to make ‘turtle-like’ lending decisions, bridge loans or hard money loans are their only source of real estate financing. Particularly during 2008 to 2010 when bank lending was virtually locked up, real estate investors had no other alternatives for financing other than bridge loans. But what is a bridge loan, you may ask?

A bridge loan is a non-bank loan from a private money source. Bridge loans are of short duration and typically come with higher interest rates than bank loans. And what kind of real estate will a bridge lender finance? Just about anything from raw land to commercial buildings. For many commercial real estate investors who have loans coming due this year or next year, bridge loans may be their only option for refinancing their properties.

If you haven’t looked into alternative sources of financing for your real estate this year, consider using bridge loans versus bank loans. A bridge loan may mean the difference between getting a deal done this year and not getting it done. Until U.S. banks can successfully adapt to new lending standards, stress testing, and regulatory reform, bank lending will not be loosening up again for a long time, particularly for commercial properties.

Posted by Corey Curwick Dutton

6 Items You Need to Close a Rehab Loan Fast

Get started on your rehab faster with a hard money loan

Get started on your rehab faster with a hard money loan

Because so few banks will lend on vacant properties in need of repair, it is often a hard money lender that will finance a rehab loan instead of a bank. Every hard money lender has a particular list of requirements needed to close a rehab loan. If you are motivated to close a rehab loan quickly, here are some specific items you should have ready or on hand:

1. Purchase Contract & Escrow Instructions: If it’s a purchase loan have the purchase contract and escrow instructions if provided, and give them to your hard money lender.

2. Bid for Repairs: Even if you’re doing some of the painting and odds and ends yourself, make sure you have a bid for repairs to give to your hard money lender.

3. Photos of the property: Take photos of the property to give to your lender. Particularly those areas of the property that will be repaired or updated.

4. Basic Loan Application: Not all hard money lenders will require a loan application for a rehab loan, but check your lender’s website to see if an application is required.

5. Proof of Hazard Insurance: Get with your insurance agent and have a quote for hazard insurance ready for your hard money lender.

6. Preliminary Title Report: A hard money lender will always want to order a preliminary title report. If you have one of these available, provide it to the lender. Do not order one yourself until you confirm with the hard money lender that it is ok to use your designated title company, or the seller’s title company.

Because every hard money lender has its own set of requirements, make sure you are well versed on your lender’s specific requirements. The more you know, the faster you will close your rehab loan.

Posted by Corey Curwick Dutton