Confusion on a mortgage product.

[Benjamin Z. Pickens]

I am shopping around for a loan on my first investment property in SC. I managed to find a lender with a decent product (SAFE Federal Credit Union). However, they only loan 80% of the purchase price for investment properties. Maybe I am missing something? If the purchase price of a home is $100,000 and needs $20,000 in rehab, they will only lend me $80,000? First issue is, it doesn't even cover the entire price of the home. Secondly, I'm left paying rehab costs out of pocket. Aside from that they seem to offer decent terms with 20% down at 7% interest for 15 years. I just feel like they may be losing out on a lot of business due to the 80% rule. Has anyone else used this lender? Perhaps I misunderstood the 80% rule? 

[Mike McCarthy]

All conventional loans will top out at 80% of the appraised value. (Some will limit to 75% for investment properties) With this in mind, you have a few options: 1) purchase with a mortgage, put in the extra 20% down payment plus rehab costs, then refinance in 6-12 months. Doable, but you’ll be spending a lot on closing costs times 2 2) find some private money. Friends, family, individual lenders, and have them put down most of the purchase and Reno funds. (You’ll still probably have to put in some of your money since most people won’t loan you 100% until they get to know you and your experience). Then in 6 months refinance with a bank based on the new after-Reno appraised value of the house (say $130K). Then You’re only putting in 20% of the $130 3) other options... though those are the two main ones.