Residential Rehab Loans

Residential rehab is the most popular exit strategy in the real estate industry. Recent developments in the real estate market has seen rapid improvements in capitalization rates. Creating wider profit margins and subsequently expanding investors’ portfolios.

Individuals wishing to establish real estate rehabilitation have an incomplete property in mind that they want to purchase. Once purchased, the investor renovates the property and sells it at a profit. However, the challenge for most investors is to secure the financial power to execute residential rehabilitation projects quickly.

To initiate a successful close that is sure to seal attractive profits, you have the option of sourcing for a residential rehab loan. Money Lender Loans is your best partner for hard money loans to finance your residential rehab plan.

If you are a resident of Orange County, Money Lender Loans has tailored credit options to help your business attain its financial strength.

Breaking Down Residential Rehab Loans

Residential rehab loans fall under the category of real estate loans.  Real estate loans are a means for real estate investors to secure funding for property investments. Money Lender Loans designed the residential rehab loans program for individuals to finance the purchase and rehabilitation of residential investment property.

Residential Rehab Loans in Private Money Lending

Private money lenders in real estate require the borrower to outline an exit strategy perfectly. This way, they will be able to achieve transparency and speed while sealing the deal. The defining factor while calculating residential rehab loans is industry experience. A new investor will be charged 10-14 % interest, while an experienced investor will incur 8 - 10%. Note the paycheck period for this loan will only last between six months to one year.

The good thing about the private money lending scheme is that you will establish a sound relationship with the lender. In fact, you are supposed to view the lender as an investment partner.

In addition, the lender will require no equity here. Therefore, the lender will work with and reap profits from the investment project; while at the same time, you will reap higher and more consistent returns.

Why do you need to obtain a Residential Rehab Loan?

California has become one of the most sought after residential centers in the United States. As a result, real estate markets in the state have been booming; due to the fluctuating numbers of people looking for places to settle. Contributing factors include; thriving economy, sunny weather, breathtaking natural surroundings, and thousands of film companies setting base in Los Angeles. Besides Los Angeles, other metropolitan areas with high demand for private residential are San Francisco and San Diego.

Investors looking to achieve high stakes in the real industry find California an ideal market. Armed with good cash, one could reap lots of profits from real estate in this region. Sadly, the financial will of most investors looking to tap into this industry is mostly meager; compared to the principal amount required to stake an investment.

Another case, the purchase, and improvement of existing real estate property requires a healthy bank account and a good pace. A fast pace is crucial for residential rehab investors. Money lenders have created ideal solutions for investors to tap into residential rehab easily. The best decision is to find a reliable lender that will provide a well-defined strategy for financing your plans. You should look for favorable terms and conditions. Only then will your efforts reap benefits.

Obtaining a Residential Rehab Loan

The best place to find residential rehab loans or house flipping loans is from private money lenders. Unless you are looking for a long term real estate loan; rather than funding for purchase and renovation. The truth is that you won't easily find these loans from traditional lenders. Generally, obtaining a short term loan from a private money lender is simpler compared to obtaining funding from credit unions or banks. In fact, the eligibility to qualify for one are low and considerate.  The loans do not attract prepayment penalty - which makes them attractive for early installment payment. Therefore makes it easy for you to mitigate financing costs.

Money Lender Loans requires that you explore the various terms and conditions specific to a loan facility before making your move.

What to do Before Obtaining a Residential Rehab Loan

Every investor has experienced a financial challenge during the funding of a real estate investment. Before borrowing any funds from a lender, take time strategizing on the best lending options on offer.  Learn more funding options and weigh which among them is favorable. A broad grasp of the function of lenders will broaden your core understanding. Helping you take advantage of what is available. Another important step before borrowing is finding expert advice from experienced money lenders or fellow real estate investors.

Understanding the Working of a Residential Rehab Loan

Most people believe property purchase is the first step to property rehab investing. After all, you got to purchase a residential and renovate it before selling it. This is not the case; the first step is to engage a contractor. A contracting agency will help you draw up a financial outline of what needs to be done. The specific property must be put in mind to help you both put into detail the costs of renovations. As a result, the lender will easily understand where each coin is going. Additionally, an investor will be able to compare the spending and the expected profits. Based on the contractor- investor plan, the lender will be able to determine the percentage contingency for cost-overruns and lend on the basis of the final figure. A healthy percentage of contingency should be around 10 - 15%.  Renovations will only kick off once the two parties close the loan deal.

Meanwhile, while the work continues, the funds are disbursed from an escrow. When it comes to a little property project, the disbursements range between 1-2. However, for larger projects, there are several draws in between the start and completion of the project. The most frequent time frame for project completion and payment of the first installment takes about six months. Nevertheless, it is possible to discuss with the lender to extend the duration.

Rehab Loan Down Payment

Money lending firms base the appraisal for rehab loans on plans set for repair. The total cost for purchase and repair will determine the down payment. A few conventional rehabilitation loans can be calculated with 5%  off. However, you should expect a down payment of up to 20% of the total costs. The high percentage is catalyzed by the fact that it is difficult to secure rehab financing. Furthermore, the stakes are even a notch higher when obtaining procuring private mortgage insurance for rehab loans. In fact,  the underlying cause for most banks not offering rehab loans with down payments of no less than 80%; remains to be the difficulty to secure the insurance.


A property costs $150,000. Additional repairs range $45,000 - $50,000. Conventional rehab will charge anything between the ranges of $35,000 - $40,000. In case, the loan is tied to the Federal Housing Administration (or FHA) - The down payment will be as little as $7,000.

Popular Types of Rehab Loans

There are three common types of rehab loans. Namely, permanent rehab mortgage, investor lines of credit, and hard money rehabilitation loans. Usually, a short term investor will secure a hard money loan to purchase and renovate a house. Eventually, they will quickly sell the house and repay the loan. A long term investor could take advantage of the rehab loan by seasoning the property before refinancing. Hence, a permanent rehab mortgage is more favorable for a long term investor.  Finally, the investor line of credit is used multiple times, over and over again, to purchase and improve a property.

Permanent Mortgage Loans

Rehab loans are more common with the FHA rather than traditional lenders. The Federal Housing Administration provides loan facilities to cover for both acquisition and rehabilitation. Notably in FHA loans and especially in regard to rehab are 203k loans. The 203k is specifically customized for individuals that want to rehab old or damaged property.  Note that the 203k loans are backed by the Federal Housing Administration. 

FHA 203K loans are usually obtained for a property that requires a minimum of $5,000 worth of work. Another feature of these loans is allowing investors to use the funds partly for rehab expenses and closing.

Investor LOC (Line of Credit)

These loans are offered to investors who own existing property out of their primary residence. The line of property tied to the investor is used to back up a loan for additional renovations. The line of credit loans taps into the investor’s equity established from already existing investments. Therefore, the investor can reliably draw credit conveniently whenever there is a need and pay when possible.  The first step to picking an investor line of credit loan is comparing various options that are offered.

Hard Money Rehab Loans

Hard money is the most common type of loan offered by most lenders. You will find these loans from small scale lenders to huge lending enterprises. In fact, in hard money rehab loans, you are likely to find a wide array of fees, terms, rates, and qualifications. National lenders will typically offer favorable terms, standardized costs and terms.

Interest rates for hard money loans range between 7% - 12%.  You can see that the rates are quite higher, unlike convection mortgages. The higher interest reflects the inherent risks associated with rehab projects, more particular the short loan time frame. It is typical for investors to repay rehab loans in full at the end of the loan period. Note that you will discuss with the lender the amount of time you are comfortable to complete all renovations and executing an exit strategy. Fortunately enough, hard money rehab loans don’t have a prepayment penalty. Therefore, you could pay the money in time and slash the holding fees if the project is completed early.

Funding a Residential Rehab Loan Through Private Money Lending

A private money lender is any non-institution firm or individual that offers credit. Often, the loans offered are secured by real estate assets. Mostly, private money lending involves short term loans that are granted to investors for either purchasing or renovating a property. You might have noted that these loans (Private/hard money loans) are favorable to both long term investors and short term fix-and-flip investors. Technically, there are three levels or private money lenders namely: the primary circle composed of family and friends, the secondary circle composed of professional and personal acquaintances and finally - third party circles involving accredited investors and money lenders.

Private money lenders are typically curated for the following types of individuals:

  • Long term and short term investors who need quick financing
  • Buy and hold investors executing a purchase and renovation prior to refinancing without a conventional mortgage
  • Fix and flippers who plan to purchase, renovate, and sell the property within 12 months
  • Long term investors planning to season real estate property
  • Long term investors without qualifications for home-style renovation mortgage and 203K loans.

After Repair Rehab Loan Valuation

A rehab loan is a loan consisting of purchasing and renovation funds. Money lenders calculate a maximum amount of loan from a property’s ARV ratio. The ARV ratio represents the percentage of the property’s speculated FMV (fair market value) after the renovation is complete. Usually, when an investor purchases property that is in good condition; the lenders offer up to 90% of the property’s real value. The loan and the purchasing prices are usually expressed as a ratio called the LTV (loan-to-value).  Meanwhile, where the property requires renovation, the financing is usually on the basis of the property’s expected ARV.

The maximum amount of rehab loan that can be offered by a private money lender is approximately 75% ARV. However,  an investor claiming an extensive track record in the industry and a good credit profile can achieve high ARVs. Nevertheless, even an experienced investor submits to a 25% cover of the property’s total ARV with their own money.

Residential Rehab Loan Qualifications

A credit score is the most crucial element while evaluating an investor’s qualification for a rehab loan. There are a variety of other factors to consider, and they vary from one lender to another. The most common qualifications include a bit of real estate knowledge, no less than 25% down payment and documents for verifying income and assets. A good example of the documents is the bank statement.

Another important factor is the location of the property that is to be purchased. Certain areas are more market worthy than others.  When borrowing; you should also understand the given interest rates that accrue with each given loan term. Short term loans are usually unattractive because they command high-interest rates. Long term rehab loans, which mostly comprise large sums of money, can be more pleasing than the short term loans. Hence, it is worth weighing the choices available once you meet the qualifications.

The investor's total income is yet another important factor that the lender evaluates. As the borrower, assess your total income and expenses to determine whether loan payout will be possible. A measure of your income for the past 1-2 years will assist the lender in analyzing your income stability. The variables obtained in these assessments might not necessarily conclude a revocation. However, you might qualify for a loan but attract higher interest rates. A sizeable down payment will also qualify you for minimal interest rates. Paying a good down payment gives the lender a sense of security; that you are worth the loan.

Finally, there are other vital documents that are necessary when procuring a residential rehab loan. These documents include:

  • Social Security number
  • Federal tax returns for the past two years
  • A Government-issued photo ID or driver's license
  • Residential address
  • Pay stubs for the past 30 days
  • Listing of financial accounts you own
  • Legal judgment info (Such as current lawsuits if any)
  • Existing debt payment and management info

Point Notes on the Steps of Using a Residential Rehab Loan

  1. Pre-qualification for the loan - the pre-qualification is non-binding and helps determine the cost, ARV ratio, fees, and terms. This phase takes a few minutes
  2. Loan approval
  3. Funding
  4. Home purchasing
  5. Conducting renovations
  6. Exit (Usually the sale or refinance)

Secure a Residential Rehab Loan from a Trusted Lender Near Me

Money Lender Loans is your trusted partner for obtaining the financing that you need. A crucial step when looking for funding is educating yourself on existing options. There are numerous credit facilities out there, and you need to find one that fits your needs. Money Lender Loans does all that for you by providing all the information you need. Our reputation is based on providing financial insight, good terms, rates, comfortable repayment schedules, and all types of loans. We combine our real estate experience to take our lending business services a notch higher. If you are looking for a residential rehab loan in Orange County, call us today at 949-409-4372.


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“Money Lender Loans was there when I needed it the most. Their application process was simple, straightforward, and easy—especially for someone like me who has never had to take out a loan before! With the loan, I was able to improve my business for the better! I would recommend them to anyone.”

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