Here’s how rehab loans help people flip homes without a ton of cash.
If you’re thinking about buying a home in order to flip it, you typically need to pay in cash or have experience as an investor. However, there’s something called a rehab loan that helps people cover the costs without having the funds on hand. It seems like few people take advantage of rehab loans, so they’re actually quite uncommon.
There are several types of rehab loans, but the most common one is the FHA 203(k). This one allows you to borrow money to purchase the house as well as make some renovations. With the streamlined FHA 203(k) loan, you could even buy a house that doesn’t need repairs and spend the extra on upgrades or additions.
Let’s say you’ve found a bank-owned house that nobody else is interested in. You decide you want to purchase it, but unfortunately, you don’t have any cash. You borrow the FHA 203(k) loan and purchase the house, and then FHA-approved contractors do the repairs and submit them to someone at FHA. The FHA will send someone out to inspect the repairs, and then they’ll pay the contractor. Then your balance on your mortgage will increase as the repairs increase; by the end of it, you’ll be at the monthly payment you agreed upon with your lender.
Rehab loans are a great way to get into properties you otherwise couldn’t afford.
It’s a great program that helps many people flip homes, so why isn’t it more popular? Well, a lot of agents don’t really understand rehab loans, so they try to avoid them. While rehab loans may have some extra steps, they’re not difficult to navigate. Agents are also scared off because they hear these loans take extra time; while this is true, it usually takes 60 to 90 days to close on an FHA 203(k) loan. For comparison, it takes around 45 to 60 days to close on a standard FHA loan.
If you want to flip a home using a rehab loan, the first thing you need to do is find an agent who’s not afraid to work with them. Additionally, you need a lender who’s experienced with these types of loans. When you find a property, these professionals can speak with the listing agent to get them on board.
Rehab loans are a great way to get into properties you otherwise couldn’t afford. My team is not afraid to help clients with rehab loans, so if you’re thinking about flipping a home in the near future, feel free to reach out to us. We look forward to hearing from you soon.