Best loan to renovate house?

[Stephen Stricklin]

Hello everyone.  I am new to real estate investing and bought a foreclosed historic house in Little Rock, AR five months ago with cash.  The house needs a total renovation and fortunately qualifies for the state and federal tax credits (45% total) for the renovation.  The purchase price was $36,000, and the contractor said it may cost close to $100,000 for the renovation.  My question is what is the best type of loan for this situation?  Has anyone had any experience taking advantage of tax credits for historic homes?  Any advice will be greatly appreciated.  

[Andrew Postell]

@Stephen Stricklin ok, thank you.  Those answers certainly help.

Most lenders will lend you 80% of the ARV. So with no lien on the property you can certainly have the renovations and closing costs rolled in to the loan with nothing additional out of pocket. If you do have a lien on the property then roll that first lien into your 80% and that's the max that you will be able to do. In general you won't get cash back. I can't speak for every bank here but I am not aware of any lender that will do a renovation loan and pay proceeds to you. But you can certainly renovate with the budget of $100k.

The Freddie Mac HomeStyle loan might be a good option but with a refinance it can only write 75% of the ARV. So if you have a lien this might have you bring some funds to closing. It will be the longest termed loan (30 years) and usually has the best rate associated with a 30 year fixed renovation loan. Not every bank carries it though. Frankly, not every bank carries renovation loans at all but the HomeStyle would be a good place to start.

Feel free to ask anything additional.  Thanks!