Rehabbing a Property? 3 Options for Your Next Rehab Loan
Whether 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
