Real Estate Financing...

In this ever-changing Market, Niche Products are not immune to changes, sometimes overnight.  While this certainly doesn't define the term 'Ideal' ... it is the reality in which we live.  I wanted to take some time to update our Rehab Loans, which are an excellent Financing Source for new and seasoned investors alike.  In Pennsylvania, areas such as Philadelphia, Harrisburg, & Wilkes Barre are just a few ripe places where you can find good deals on properties that are great fits for this product.

So, here are some Frequently Asked Questions about Rehab Loans here in Pennsylvania:

What is a Rehab Loan?

A Rehab Loan is designed to allow an individual to purchase or refinance an existing home and base the loan off of the ARV (after repaired value).  By basing the loan off of the ARV, in most cases, you can include the purchase price or payoff, the cost of repairs, and closing costs.  There is a minimum cash injection that is now required on all Rehab Loans that I'll address in a hot minute.  This loan is perfect for that seasoned investor, first time home buyer or just someone looking to add on or give their current home a face lift that Joan Rivers would envy.  To boot, it does minimize out of pocket expenses.

Can you give me an example of a Rehab Loan based on a purchase?

But of course!  Let's say that you are going to purchase a single family, distressed home for $40,000.  You and your contractor walk through the home and you both decide that it's going to take $30,000 to bring the home up to date and safe for living.  At this point we would give a Licensed Real Estate Appraiser the purchase contract and the bid for cost of repairs.  The appraiser's job will be to give us an ARV (after repair value).  So the appraisal is done and the ARV is $100,000.  Under the guidelines, the maximum can be 80% of that amount which is $80,000.  So far you only need a total of $70,000 ($40,000 for the purchase and $30,000 for the cost to repair) so you have up to $10,000 to use towards closing costs or even more repairs.

How much and what is "cash injection"?

All Rehab Loans now require (at one time they did not) a minimum Cash Injection by the borrower.  This number is figured by taking a set percentage of the total of the purchase price and the cost to repair.  So using the figures on the previous example given, if the purchase price and cost of repairs totals $70,000 and the property will be owner occupied, then the percentage used is 3% which is $2100.  This money is required to be out of pocket and can not be offsetby seller concessions.  If there was a deposit placed on the purchase contract, then that would be deducted, if not it would need to be brought to the closing table.  If the property will be used as an investment, then the required Cash Injection would be 5%.  If the loan amount is over $250,000, then it is a minimum of 10% Cash Injection across the board.

What if I am a contractor & the borrower, can I do my own work?

You can if you are approved through my Investor's Construction Loan Department.  While they aren't the most exciting folks on Planet Earth, they tend to be pretty fair.  There is a required set of documents that must be completed and submitted to the department.  Once they go through and review all of the information, they will render a decision.  If not approved, you must hire a General Contractor or you won't be approved for the loan.  In my experience, applying to be a Self GC should be done as early in the loan process as possible, just in case you are not approved to do so.

What is the criteria that is required to be approved for a Rehab Loan?

There is minimum credit score requirement and there are income requirements.  Currently, the Mid-Score has to be 660.  (Please call or email me for more details on that though).  We do not offer Stated Income Loans on this product so, you must be able to qualify and prove an income.  There are Bank Statement Programs though, where 70% of deposits can be used for personal statements and 50% of deposits can be used for business bank statements.

Is this a Balloon Mortgage like a Construction Loan?

No, the Rehab Loan is an actual mortgage amortized over 25 or 30 years, on a 1 year ARM.  If the property is Owner Occupied then it is amortized over 30 years, Non Owner Occupied is amortized over 25 years.  The loan is repaid by monthly principle and interest payments.

How are the draws structured for the repairs?

On a Rehab loan, the money to repair the home is dispersed by percentage of completion.  This means that once work has been done, then a draw can be ordered and then money will be dispersed according to completion.  My Investor always disperses 10% of the cost of repairs at closing to start the project.  If the total cost of repairs is under $50,000, then there will be three reimbursement draws available for 33%-33%-34%.  If the total cost of repairs is over $50,000, then there will be four draws all at 25% each.  Again, other than the 10% draws at close, all other draws require that work be completed, they are not draws given to do work.

Thank you for joining me here in an updated look at Rehab:-)  There are still great deals to be had, you just got to know who has access to the purse strings to finance them.