Flipping a home has several aspects to it. One is the financial side: getting the money, ensuring you have the funds ready to go for what you need. Another aspect is the hands-on aspect, which refers to the elbow grease needed to get a place up and running and turn-key condition. Here at Entrust Capital Funding, we help clients take care of the financial side so that they are at ease about having the financial backing they need to fulfill their vision. There are different ways to go about flipping homes, and one way to get there is through rehab loans.
How Did The Concept of a Rehab Loan Originate
Generally speaking, a rehab loan is a term used for a specific type of loan. It refers to when an investor seeks to buy real estate property in subpar conditions to renovate it and sell it for a profit. The idea is to renovate the property quickly and turn around and re-sell it for a better price in order to reap the rewards. A traditional mortgage loan would take too long and slow down the process needed to make flipping profitable and efficient. This is where a rehab loan can save the day.
The term rehab loan is used in the United States and Canada. It was closely related to the hard money industry, which began in the 1950s. The term ‘hard money,’ however, originated as early as The Great Depression. When the crash hit, people became distrustful of banking institutions, and many people took their hard-earned money out of the banks, out of circulation, and put it in between their mattresses.
Without the money in circulation, lenders had to find other ways to get money to make loans. This led real estate to be used as collateral, and without much choice to get quick cash, many people took out loans against their homes. In the 1950s, changes were made to the credit industry that changed the way that people applied for these loans. The industry had its ebbs and flows, and since the 1990s, private lenders became a more popular choice for real estate financing. Investors realized that hard money loans offered benefits and perks that were not the same with traditional loans.
What Are the Different Types of Rehab Loans?
Rehab loans depend on where the funds are coming from. There are different types of rehab loans. The three main types include:
- Investment Property Line of Credit: This refers to tapping into your existing equity of a current home in order to finance the renovation work for a new property. This is similar to a home equity line of credit loan.
- FHA (Federal Housing Administration) 203 (k) loans: This loan is considered a rehab loan because it deals with a property that needs to be renovated, but it is for your personal use. It’s a way to purchase or refinance a home that is in need of major renovations and tag on the repair costs to your mortgage. The FHA 203 (k) loans offer a longer time to repay and lower interest rates. In order to get this loan, buyers must go through certain FHA – approved lenders.
- Hard Money Rehab Loan: These loans are great for real estate investors and buyers that have trouble finding financial assistance. Your income and credit scores are not a factor in qualifying for these loans. It’s all about the kind of collateral you can put on the table. For many real estate investors, the property in question is the very collateral they offer in exchange for the loan.
A Closer Look at Hard Money Rehab Loans
Hard money rehab loans are the go-to loan for many house flippers and those getting started in the real estate investment business. They are the get-in-get-out loan of choice. Flipping a property is meant to be a quick affair without the dragging processes of complex underwriting, credit investigations, and so forth. Many new investors do not have the capital at hand or the funds to see their first project through. This is part of the buyer’s initial risk, as they commit to the sale and the renovations.
What Do Hard Money Lenders Look For?
A hard money lender like Entrust Capital Funding will focus on the property in question. More specifically, we look at the real estate’s after repair value (ARP) when considering the final amount of your loan. Since the property is the main collateral, these assessments are made to cover the risk the investor is taking by lending the money. Depending on the property, a hard money lender can lend up to 75% of the total property value.
Get Your House Flipping Started with Reliable Hard Money Rehab Loans
Here at Entrust Capital Funding, there are no set specific requirements to qualify for a hard money rehab loan. We don’t look at your credit or evaluate debt history. Our investors are interested in investing in worthy real estate ventures.
If you’re looking for fast money to make a real estate investment. Come talk to us. Call the professional team at Entrust Capital Funding and tell us more!