Getting Rehab loans starting out.

[Marquis Ephraim]

Hey. I'm a new investor. I'm wondering how to go about getting loans to fund a rehab project. Do you get money to buy the property and then rehab it, do you only get money if you already have a property to rehab, what are good interest rates to look for? I don't have the capital to fund the purchase or rehab of a purchase.

[Adam Juodis]

@Marquis Ephraim Depends on what type of loan you are using to fund your project. If you are looking at a conventional loan, if the property is in really rough shape, you're gonna have a hard time getting funding for the property in the first place. But in the case the bank approves your deal, they would roll the rehab costs into the mortgage amount, and required down payment/interest would be based on the entire amount.

You would probably have a better shot at getting property loan+rehab funds from a smaller bank or local credit union, since most of them are not tied into Freddie/Fannie Mae loans(Government sponsored, with stricter rules/regulations). Here you'll pay probably a few % higher on interest, but it's more investor friendly of a lending strategy.

Also, there's Hard money and Private money loans, which is funding from either other investors or people you know. With these types of loans, the payback period is typically short, and the interest rates are very high. But if you're rehabbing the property, you're putting in sweat equity to boost the price of the property vs what you bought it for, and refinance 6-12 months later for a conventional loan rate.

You mentioned that you don't have the funds to purchase or rehab. Unless the deal is smoking hot, which you could go the HML route, you're not going to get funding without putting a decent down payment down.

Edit: Forgot to add the route of FHA+203k loans. If you're looking to live in this property for at least a year, this is a great strategy to get in for only 3.5% down for the property+rehab costs, at a pretty standard interest rate.