Using Personal Loans and Hard Money

[Jelani Fearon]

Hello everyone,

I’m looking forward to securing my first property this year and as a thought experiment I’ve been thinking of creative ways to finance properties, and I wanted a second opinion. What do you think of these scenarios?

1. Getting pre-approved for a 203k loan to finance the property, but then taking out a personal loan in order to pay contractors up front and using the rehab budget to pay back the personal loan OR pay the personal loan back after refinancing and getting cash back when the home appraises for more.

2. Cash only property that needs major work: Is it common to ask a hard money lender to secure a property + rehab? If that’s not possible, what about getting a hard money lender to get a property under contract and then taking out a personal loan to finance the rehab?

These were some questions I had and would like to know if the forum has any educated opinions or insight on these above scenarios.

[Paul Welden]

The 203k loan already includes $$$ for the rehab. So, there is no need to take out a personal loan to pay contractors. Contractors doing 203k work must have sufficient financial reserves to afford the startup costs and ongoing expenses for the 203k. It makes no sense for you to pay interest rates on 203k rehab money and then more interest rate on a personal loan for the same money. 

Just use a contractor with the designation as a Certified 203k Contractor found online at 203kContractors.com. Apparently, these Certified 203k Contractors already have had their financial reserves verified and can afford to pay for the upfront costs and ongoing expenses for 203k loans.