The rehab loan exists almost exclusively as a means of making short-term investments. Such as renovations to a property you wish to sell. You use the loan to quickly purchase the property, “rehab” it, and sell it for a net profit. Anyone who’s been in real estate for some time knows that this is impossible to accomplish with the standard mortgage loan. Due to the numerous qualifications necessary to acquire one – as well as the sheer time (often months) before approval. Here, we’ll take a look at a few rehab loan types available for the “house-flipper”.
Rehab Loan Type: FHA 203(k)
This type is from none other than the Federal Housing Administration and is best employed for real estate you purchase for personal use or long-term holding. The 203(k) loan is tailor-made to provide funds for the purchase of property in need of repairs (fixer-uppers, so to speak). Furthermore, it ensures that you needn’t apply for several unwieldy mortgage/home renovation loans that you then have to keep track of separately. For the FHA 203(k) rehab loan, you will enjoy a lower rate of interest as well as a longer-term for repayment than the alternatives.
Rehab Loan in the Form of Hard Cash/Money
This is exactly what it says: the hard money rehab loan is usually all about viable collateral. Of course, if you’ve got the cash and don’t need financial assistance, you can choose that option. Although, it’s usually better to keep your cash in reserve if collateral can suffice. The benefit to the hard money rehab loan is that you don’t need to have good credit or income to qualify.
The Investment Line of Credit Rehab Loan (LOC)
To use this option, you must already have a home; you’re using the equity of that home to pay for the renovations on the new property you acquire. You will enjoy lower rates of interest than with many of the other financial vehicles.
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