Rehab Loans for Real Estate – How Rehab Loans Work?

The way rehab loans work, well particularly from Rehab Financial Group, is we give the borrower the opportunity to borrow.


The way rehab loans work, well particularly
from Rehab Financial Group, is we give the borrower the opportunity to borrow both purchase
and the rehab costs wrapped into a single loan and then they go buy the property, we
can close very quickly, they take advantage of a great opportunity, and then we hold rehab
money and as the rehab’s done, we release the funds to the borrower and hopefully in
the end the borrower is either able to refinance the property and hold it has a rental for
cash flow, or sell the property at a profit. How long is the loan for? Our loans are 12-month,
interest only loans. How do you calculate the monthly payments on those. Let’s say I
found a property that was worth, I bought it for $100,000 and it needs $50,000 for rehab.
How do I calculate my monthly payments? Well what you would need would be $150,000 for
that loan unless the borrower wanted to put, unless you wanted to put some of your own
cash into it. But we would then first evaluate the property to make sure it could carry the
$150,000 loan. Specifically we lend 65% of the after repaired value. How do you calculate
that? That’s determined by a profession licensed appraiser that we will arrange to have inspect
the property, review the repairs you’re expecting to do to the property, and give us a value
of what the estimated after repaired value of the property is. Once we have that value
from the inspector then we can work backwards. For the truly qualified borrower, we will
lend up to 65% of that money. So how much would this property need to be worth? So in
your example, if you needed to borrow $150,000, we would divide that by .65 for the 65%. The
property would need to appraise for approximately $231,000 to support the full loan, assuming
that you meet all our other underwriting criteria, we would be to extend the loan at 65% of that
appraised value. What do you do after closing with the funds? Do I get the money for the
rehab or do you hold the money? We hold the money. At the time we close the loan, we place
your money into escrow. Just the rehab? Just the rehab piece. We will fund the purchase
100% and you need to be able to be able to get the rehab started on your own and then
as you are finished, with pieces of the rehab, you can ask us for draws as frequency or an
infrequently as suits you. You do have to remember that you do pay for every inspection,
so you have to temper your need for the cash from the rehab draws versus the expense of
the inspections. Some of our borrowers will take a very a small draw up front just to
get cash flowing and then they will contact us further along the project. The borrower
has as many or as few draws as they want. It’s at their convenience and in whatever
way works for them. How much is a typical inspection for the draw? Typically for a single
family or a 1-2 family, or a 2-family, it would be $100-$150 or $75-$150. It really,
depending on the inspector and the complexity of the work being done. And they inspect based
on my initial repair list? Yes, when you initially come to us with a property, we will have it
appraised. We will also have an inspector go and verify your repair list. And then the
inspector really works up his own repair list and works with the borrower to get the repair
list that’s right for the project. And then that’s the repair list we work against for
the rest of the project. And I’ll also say with regards to the repair list, the more
detailed it is, the more line items and price-per-line item you have on your repair list, the easier
the draw process is.

One thought on “Rehab Loans for Real Estate – How Rehab Loans Work?”

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