Type of loan to pay for the rehab costs?

[Thomas Lanzano]

Hi all,

I have the money needed for the down payment on a rental property, but not sure if I have the money to cover repairs. When I buy the home (say it’s $100,000), I have the $20,000, but I don’t have the $10,000 for repairs. What kind of loan can I use to cover not only the rest of the $80,000 but for the repair costs?

[Evan Polaski]

@Thomas Lanzano, you can look into local banks doing construction loans or HML loans to get the property bought, rehabbed and rented. Then take out the construction loan or HML with a conventional loan. Local banks will require 20-25% of total cost, typically. HML may do up to 90% purchase and 100% rehab, but I have always been quoted 1 point + costs up front, and 12% interest on whole balance. Both will want to see that you have the means to make the payments while the property is empty, and want to feel comfortable the ARV is there to take them out by end of term. Typical construction loans and HML are 12-18 months, interest only.

That being said, the costs and fees of getting this financing and then refinancing in under a year are likely going to be almost as much as the $10k needed to complete construction anyways.