Rehab loans are a niche product provided by a select group of rehab lenders. Rehab lenders generally are hard money lenders with a higher level of understanding of rehab projects than a typical lender.
There are many different types of rehab loans, but they all essentially accomplish the same thing: modify an existing property so it's worth more remodeled than it was when you bought it.
Don't expect the rehab lender to lend hard money based on an as-fixed basis. Rehab loans will almost always be based on as-purchased price. Why? Because the private investor funding the rehab loans wants protection if you buy the property and do not make the improvements.
Although future value may not be used to consider the loan to value ratio, it is a large factor in what the lender will consider in terms of how risky the rehab loan is.
Projects that are riskier and require more substantial work will require lower loan to values. Hard money is all about risk and reward. A residential property that just needs carpet and paint is far less riskier than a vacant 15 unit apartment building in which all the units and the main property need an facelift.
The stronger your personal balance sheet, the more likely you are to obtain rehab loans. Rehab lenders want strong borrowers. If the project under consideration is your first one, you will likely want an equity partner to build a track record and help you get started. If you can satisfy the lender with other collatera, including real estate, cash and stocks, you will be much more likely to obtain the loan.
Private investors in rehab loans want to know they will make a certain return on their funds. Expect to commit to use the funds for a fixed period of time or pay an additional penalty. Rehab loans are a great way to earn a high return on real estate. Use our directory of rehab lenders to find rehab lenders who can fund your specific loan request.