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If you are an investor wanting to flip homes for a profit or a homeowner ready to increase your wealth, you may want to consider a rehab loan. Rehab loans — also called renovation loans — can help you successfully refinance or purchase property, pay for repairs, and fund remodels.

Rehab Loan Options for Your Unique Needs

There are several types of renovations loans to help you reach your financial goals. The best choice for you will depend on your situation. The following details can help home-flipping investors and owner-occupant homeowners understand how rehab loans work. 

FHA 203(k) Rehab Loan

Homebuyers and homeowners can take advantage of Federal Housing Administration (FHA) 203(k) rehab loans. These loans provide approved homebuyers or owner-occupied homeowners with the funds to purchase, refinance and improve properties—with only one application and one loan. This rehab loan conveniently combines the home mortgage and improvement expense into one payment. In addition, the FHA insures 203(k) loans and generally provides low-interest rates and extended repayment terms.

Qualifying. Potential borrowers must complete an application with an FHA-approved lender and meet FHA guidelines. For example, they must have a credit score of at least 500, rehabs must cost $5,000 or more, and a property’s total value must meet FHA requirements.

Property Line of Credit

Investors who already own a property with equity and need ongoing access to credit are excellent candidates for these loans. Accepted borrowers can use a percentage of their property’s equity to finance repair and remodeling projects whenever needed. Since a property with equity secures the loan, they have lower interest rates than other financing alternatives. Thirty-year repayment terms also make them attractive.

Qualifying. Most of the time, borrowers must have a good to upper-tier credit score, low debt-to-income ratios, and own equity in their property.

Hard Money Rehab Loans

Investors often find these short-term loans an uncomplicated option. Lenders rely on an investor’s collateral rather than credit scores and income, simplifying the lending process. Although they can have high-interest rates and short repayment terms, these loans are processed and disbursed quickly. Funding is often accessible in just a few days.

Qualifying. Hard money lenders often use a property’s after repair value (ARP) to determine the loan amount. Loans can range up to 75% of a property’s ARP.

Exploring Your Rehab Loan Options

When you want a funding option to help grow and improve your financial future, the right rehab loan can help. Call our financial experts at Ideal Financial Group to help you obtain the perfect rehab loan for your needs.