All Forum Posts by: Perry Farella

Another thought here is to use an Investors Rehab loan called HomeStyle. That way all the debt is on the new investment house on not on your personal residence ( ask yourself what Trump would do LOL). HomeStyle works on single family investment properties or condos or townhouses but not on multi-units. It is a conventional loan insured by Fannie Mae. You need a 20% down payment on the total of the purchase price plus rehab funds needed. You do have to hire a general contractor to do the work, no "self help". This is a managed process to keep you from getting into trouble basically. It works for 2 important reasons; 1) the future rent is projected that the house will generate and you get 75% of that as extra income to qualify for the mortgage; 2) the future, finished value of the house after all rehab is done, is used as Appraised value to allow you to borrow the funds. Example: old house costs 50k to buy and 50k more to rehab, down payment is 20% of that or 20,000; future value with that 50k rehab is appraised to be 120k. You win. You can flip the house, the lender cant stop you or make you rent it. But rental is assumed so you get the credit or extra income based on Appraiser survey of local rents for similar homes to get the mortgage approved. All without adding debt on your own house. A Heloc will go up in rate unpredictably, why do that ? I wrote a blog on this called Rehab Dollars & Sense at perryfarella.com.

Another thought here is to use an Investors Rehab loan called HomeStyle. That way all the debt is on the new investment house on not on your personal residence ( ask yourself what Trump would do LOL).  HomeStyle works on single family investment properties or condos or townhouses but not on multi-units. It is a conventional loan insured by Fannie Mae. You need a 20% down payment on the total of the purchase price plus rehab funds needed. You do have to hire a general contractor to do the work, no "self help". This is a managed process to keep you from getting into trouble basically. It works for 2 important reasons; 1) the future rent is projected that the house will generate and you get 75% of that as extra income to qualify for the mortgage; 2) the future, finished value of the house after all rehab is done, is used as Appraised value to allow you to borrow the funds. Example: old house costs 50k to buy and 50k more to rehab, down payment is 20% of that or 20,000; future value with that 50k rehab is appraised to be 120k. You win. You can flip the house, the lender cant stop you or make you rent it. But rental is assumed so you get the credit or extra income based on Appraiser survey of local rents for similar homes to get the mortgage approved.  All without adding debt on your own house. A Heloc will go up in rate unpredictably, why do that ? I wrote a blog on this called Rehab Dollars & Sense at perryfarella.com. 

To Add a bit of info here,

I would suggest an fha 203k rehab loan in a 2 to 4 unit property that is either an estate sale, rundown, damaged or a foreclosure in an affordable Chicago neighborhood outside of Lakeview or Lincoln Park. I have much experience in this area and many successful client stories. The way to finance closing costs is offer aggressively and with FHA you can ask the Seller to pay up to 6% of the sale price for your closing costs & prepaid items like an entire first years worth of home insurance, attorney fee etc. IE if a property is selling at 100,000 you offer 105,000 with 5000 coming back from the Seller to pay your closing costs and Seller is happy to get the 100,000 and you get 5000 for costs. You have effectively financed your closing costs. Still need your 3.50% down payment which can all be a gift from family or your money. The 203k allows you to add in the dollars needed to repair/restore the property to the same 30 year term loan. These days it costs about $5 in monthly payment to borrow each thousand dollars on a 203k. You can use the expected future value of the property based on the work to be done to get the loan approved rather than the current rundown value you pay for it. Appraiser will also project expected future rents of the rehabbed apartments even though they may be vacant now. Then 75% of the future rents is credited to you to help qualify for the loan you need in addition to your job salary. IE if rent is 1000 a month you get 750 as extra income to qualify. FHA only requires you live in the property yourself for 12 months before leasing all apartments to tenants. So 203k is a great way to buy a property at a discount, get funds to repair it, all with only 3.50% down and have Seller pay all closing costs. FHA will require you have up to 6 months of reserves ( house payment money) left over after closing however. This is a great way to get started as areal estate investor.

Marquis,

There is a rehab loan for investors of one unit type properties, called HomeStyle. I'm happy to explain it to you if you wish. Basically you can boreow up to conforming loan limits, 424,100 this year in Illinois with a 20% down payment. Then rent or flip the property when rehab is complete.

Thought I would chime in as a new rehab lender member from Chicago. Yes HomeStyle is designed for an Investor with 20% down on the whole transaction ( purchase price + rehab dollars) when buying. Or will go to 75% loan to value as a refinance of a property you own already as an Investor to provide funds to rehab a 1 unit ( house, condo, townhouse). As stated above we take the future, "as Finished" value into account up front off contractor work write ups when making the loan. A licensed GC must be involved but you can do painting or demo yourself to reduce costs. I Blog about all this at

Perry Farella