Rehab amount larger than purchase price

[Grant Carrington]

Wanting to know if anyone knows of any hard money lenders that will fund a deal in which the rehab will cost more than the purchase price.  Let's say purchase price is 50k and rehab is 60k.  Having a hard time finding a lender so any help would be greatly appreciated.

[Perry Farella]

Another thought is a conventional investor rehab / purchase loan called HomeStyle or Choice Renovation. Here the down payment is 15% of total of purchase price + rehab dollars. Only restriction is rehab portion of the loan cannot be more than 75% of ARV. If the rehab is higher than the purchase price that is not an issue. It might mean you are getting a good deal.

Example: Purchase 50K + rehab 60K + required 10% emergency reserve on rehab which is 6k in this case = 116,000 total transaction X 15% down of 17,400 leaves a 30 year mortgage for 98,600. The max rehab dollars are restricted to 75% of ARV. Say ARV is just 120k ( I hope it would be much more in real life) then max rehab dollars are 75% of 120k or 90k. That's fine since this rehab is 60k.

If you don't mind lender oversight, using a licensed contractor then this loan may work for you. No pre payment penalty so fix/flip and pay off the loan or lease/rent and keep the loan for 30 years while the rent pays it off. rates are in the 5's today.

The loan is only for individuals - no LLCS or corporations. So it is a loan in your name, based on your credit history etc.

A bonus is that the future rent is automatically projected by an Appraiser and given to you as extra income to qualify at 75% of gross, even though you may not plan to rent when completed. So its fairly easy to qualify.

You cant make a mistake basically since the lender will analyze the deal and if ARV does not support the rehab costs, the loan will be denied.
Examples are in my Blog or ask questions any time.