Are there any specific type of rehab loans to apply for?

[Melissa Rivera]

Newbie! 

when you are looking at a home you want to rehab to fix and flip it. What kind of loan would you use? Are there specific types of rehabbing loans out there just for fix and flips? 

[Jerry Padilla]

@Melissa Rivera

There are loans available for rehabbing an investment property with conventional financing that will save you a lot on interest rates, compared to a hard money lender. It depends on how long you are going to hold the property as well. 

For an investment property, there are 2 types of conventional products for rehabbing a property that I am aware of. 

Here is a little bit of info on these two products. I am glad to send you more info, as well. 

EZ-C Conventional Renovation Loan: 

Product Overview

• To be used on Conventional loans for either required or optional repairs.
• Repairs MUST be permanently attached to the property and add value.

NO MOBILE/MANUFACTURED HOMES

Primary Homes

-1-4 Units

-620 FICO Minimum (660 High Balance)

-95% LTV 1 Unit

-80% LTV 2 Unit

-75% LTV 3-4 Unit

Second Homes and Investment Properties

-620 FICO Minimum (660 High Balance on Second Home only)

-1 Unit - 80% LTV Purchase Only (75% LTV Refinance)

-2-4 Unit Investment Properties now eligible (75% LTV purchase/refinance). Standard Conforming Loan amounts only, NO High Balance.

Allowable Repairs or Renovations

• Repairs/improvements must be permanently attached to property and add value
• Cosmetic repairs only
  • "Built-in" kitchen appliances

Conversions:

-Conversion of 2-unit to 1-units

-Conversion of 1-unit to 2-unit by exception only. Borrower must have prior landlord experience or qualify without rental income

Renovation Cost Limits

• Up to $35,000 in repairs/improvements
  • This includes the 10% contingency reserve
  • Loan amount calculation is Sales Price + Bid + Contingency Reserve ONLY
    • Renovation fees CANNOT be rolled into the loan amount unless it is a REFINANCE and LTV permits.

Note: If cost of renovations exceeds 35k, the Borrower/Seller is NOT allowed to pay the difference at closing from their own funds. If maximum amount is exceeded use HomeStyle Renovation program.

Contingency Reserve

A contingency reserve equal to 10% of the total costs of the repairs/improvements must be established and funded for all mortgages to cover required unforeseen repairs or deficiencies that are discovered during the renovation.

HomeStyle Renovation Loan: 

Product Overview

• Combines home purchase or refinance (limited cash out) with home improvement financing in one loan with one closing
• Provides a convenient way for borrowers to make renovations, repairs, or improvements totaling up to 50% of the "as-completed" appraised value of the property with a first mortgage, rather than a second mortgage, HELOC, or other more costly financing method.
• Funds can be used for repairs or renovations that are permanently affixed and add value to the property.
• Primary residences as well as second homes and investment properties are eligible.
• NO MOBILE/MANUFACTURED HOMES

BOND/DPA NOT ALLOWED EXCEPT COMMUNITY SECOND DPA UP TO 100% CLTV.

Required LTV's:

Primary Homes:

-1-4 Units

-620 FICO Minimum (660 High Balance)

-95% LTV 1 Unit

-85% LTV 2 Unit

-75% LTV 3-4 Unit

- Minimum 680 Credit score

Second Homes

-1 Unit - 90% LTV

-700 FICO Minimum

Investment Properties:

-1 Unit - 85% LTV Purchase Only (75% LTV Limited Cash Out)

- 720 FICO Minimum

-2-4 Unit Investment Properties - NOT ALLOWED WITH THIS PRODUCT!

Allowable Repairs or Renovations

• Funds can be used for any repairs or renovations that are permanently affixed and add value to the property.
• Allowable repairs or renovations include, but are not limited to:
  • Installation of an “in-ground” swimming pool
    • Outdoor living areas are also eligible along with the pool installation
  • Subject property cannot be an unfinished model home or unfinished new construction.
  • Kitchen appliances (i.e. cooktop/ovens/stove/refrigerator/dishwasher) may be included only as built-in fixtures (attached to property - cannot be removed) in connection with a total kitchen renovation that includes new cabinetry and countertops. Eligibility will be determined by the Renovation Department on a case-by-case basis. Washers and dryers are not included - no exceptions.

-Properties requiring foundation or structural repairs require a foundation or structural report from a licensed engineer. Some examples include but are not limited to additional square footage being added, garage additions with new foundations, cracks or settlement.

Renovation Cost Limits

• The cost of renovations is limited to 50% of the “as-completed value” of the property*.
  • No exceptions. This is a Fannie Mae requirement. These limits include the 10% contingency reserve IF FINANCED and all fees/costs listed below in the Fees section. Note: If the cost of renovations exceeds the maximum, the Borrower is NOT allowed to pay the difference at closing from their own funds. However, Contingency funds CAN be paid out of pocket. Any borrower funded contingency that is not used to complete the project will be refunded back to the borrower.
• Projects that include Structural Repairs or Adding Square Footage MUST have a Structural Engineers Report.
  • If an Engineer's Report is not economical in your area, a Feasibility Study can be ordered from Trinity Real Estate Solutions: