Real Estate Investor Rehab Loan Guidelines

Investor Rehab Loan Program

There are many programs for commercial and residential real estate investors to purchase and rehab income producing real estate with low or no down payment. These are generally called hard money loans made by private investment funds. If you want to buy property for investment purposes there may be a program for you. These are general guidelines to help you determine if you qualify for a hard money loan. In these are the criteria that private lenders look for to lend to REI's (Real Estate Investors).

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Collateral - The property type and property value. Capacity - The borrowers ability to make loan payments. Credit - The history of how the borrower has paid their bills. Character - The experience as a investor and rehabber. Assets - cash reserves in case the cost of the renovation are higher or other contingencies. Exit Strategy - How will the investor repay the loan on the property.

Collateral

The property type and current plus the after rehab value are the most important factor in if a private lender would make a hard money loan. But, in this market with an unlimited flood of REO and distressed property, no lender wants to own properties. Private lenders want to make quick short term loans that have good security and that they are reasonably assured they will quickly get there money back.

Capacity

Most funds require interest only payments for the term of the loan. The lender needs to know if the borrower has the means to make those payments. Unlike hard money loans in the past less emphasis is on the property and more is placed on the borrowers ability to repay the loan.

Credit

To that end credit has become more important. The credit profile shows the history of repaying debt and the capacity to handle new debt. The credit score is a statistical means to determine the future repayment of the loan. Again the lender wants their money back not to own the property. Many Rehab loans require a minimum credit score of 680 today.

Character

In tradition conventional mortgage programs the character represents the subjective elements of a credit profile to that help an underwriter make a decision not just on hard facts. For Investor Rehab Loans that would include experience as an investor and rehabber. Some private lenders are even running criminal background checks to avoid potential fraud and other issues.

Assets

When a file is underwritten for its full merits, a borrower who has a lower credit score and substantial assets is as safe or safer than one with limited assets. This includes down payment and reserves for emergencies and to even pay off a loan if necessary.

Exit Strategy

Now the most important part of the deal. If the borrower has a property with lots of equity and good credit, income and assets chances are good they can refinance the property with a conventional lender to pay the high interest short term rehab loan off. This is the most important aspect of investor rehab lending, will the get their money back quickly. Therefore, some private funds will make loans to borrowers with credit scores as low as 600 if they have a viable exit strategy and assets to cover contingencies.

Rehab Lending Today

In the past the property was almost the only criteria to get a hard money rehab loan. Today the bridge funds are looking at a complete file and underwriting the deals with exit strategy as the first priority. Gone are the days were credit and assets did not matter. The borrow must qualify for a refinance or have a solid verifiable way to pay off the loan by the end of the term. When that is the case it is a win win for everyone, even the economy in general.

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