If you’re looking to purchase a property that is in significant need of repairs, whether as an investment opportunity or to help you move into an area you might not otherwise be able to afford, a hard money renovation loan or purchase rehab loan can help make it happen. Essentially, a purchase and renovation loan is a loan that allows you to purchase and renovate a property with the same loan, rather than requiring you to arrange multiple loans. This is a convenient, efficient and cost-effective option that will allow you to streamline the process and optimize your investment’s potential.
Why choose a purchase and renovation loan?
Increase your borrowing power. One of the biggest appeals of a purchase and rehab loan is its ability to boost your borrowing power. This is because an asset-based lender will assess the loan to value (LTV) based on the after-repair value of the property, allowing you to borrow a percentage of what the property will be worth once the property has been renovated, repaired or upgraded.
Save time, hassle and money with a one-time close. Instead of having to close multiple loans to purchase and renovate a property, a hard money loan allows you to do this only once. That means you’ll not only save yourself the time and hassle of going through the process, but you’ll also save money by only having to pay closing costs once.
Secure a loan even without a top credit score. Because private lenders for real estate will usually consider the potential of the property rather than your personal circumstances, it may be possible to secure a hard money real estate loan even if you have a less-than-average credit rating.
Increase your equity. By buying a property in need of repairs and renovating immediately, you’ll significantly increase your equity as soon as works are completed. This means if you’re planning to hold onto the property, you’ll be able to close your purchase and renovation loan by refinancing with a favorable permanent option.
Purchase a property that might not otherwise qualify for financing. Another perk of a purchase and renovation loan is your ability to purchase a property you might not be able to otherwise. For instance, some properties are in too poor condition to qualify for other loan types.
What can you use a purchase and renovation loan for?
As discussed above, a purchase and renovation loan is used to fund both the purchase and renovation of a property. The renovation proponent of the loan can be used to fund both minor and major works with no minimum requirements. For instance, if all you need to do is a replace a few appliances, this can be covered by a purchase and renovation loan – so long as the works increase the value of the property. Likewise, a major overhaul or addition to the property can also be covered. Other renovation works may include installing new heating and cooling systems, adding a master suite, fixing mold problems, enhancing a property’s energy efficiency, replacing the roof, landscaping, upgrading bathrooms and kitchens, and so on.
Generally, purchase and renovation loans can be used for both owner-occupied properties as well as non-owner-occupied properties. This includes:
· Single family residences
· Multifamily residences including duplexes and condominium complexes
How can you get a purchase and renovation?
Securing a purchase and renovation loan with a reputable private real estate lender like RSC CONSULTING LLC is easy. The process usually involves an easy online application process, speaking with a senior loan officer who will get a better understanding of your project and what you need, followed by a fast approvals process.
How hard money renovation loan purchase and rehab loans work
Typically with a purchase and renovation loan, you’ll borrow the total amount for both the purchase and renovation upfront. Your chosen lender may hold the funds for the renovations in an escrow account and then disburse these to your approved builders or contractors throughout the project. Often, these loans will also have a contingency set aside for any unforeseen costs that may arise during the course of the project.
There are different options when it comes to purchase and renovation loans. Some to note include:
· Fannie Mae HomeStyle Renovation loan
· Freddie Mac CHOICERenovation loan
· FHA 203(k) limited loan
· FHA 203(k) standard loan
Things to be aware of
· A purchase and renovation loan may incur higher costs. Though purchase and renovation loans usually offer lower, fixed interest rates compared to a home equity line of credit, for example, there are often additional fees involved. This is due to additional inspections and disbursements required during the process.
· A purchase and renovation loan is a good short-term option. Due to interest rates that are higher than traditional mortgages, most borrowers will refinance their loan in favor of a more traditional mortgage once renovations have been completed. Unless, of course, you’ve purchased the property as a fix-and-flip investment and intend to sell immediately.
· You may need cost estimates for the loan to be approved. Often private money lenders will require written quotes from approved contractors when assessing the value of the loan.
· There may be limits and restrictions placed on how you can use the funds. When deciding on your hard money renovation loan or purchase and rehab loan, be sure to look into what the funds can be used for. Some lenders will place restrictions on what you can and cannot use the renovation portion of the loan for. Get a hard money renovation loan or commercial real estate rehab loans for your project today. We are commercial bridge lenders for renovations, purchase and cash out refinancing. Contact us about your commercial real estate rehab project today.
To find out more about purchase and renovation loans and how you can make them work for you, get in touch with RSC CONSULTING LLC. We can talk to through your options and help you make the best decision based on your unique circumstances.