Rehab Loans

Rehab Loans Explained

The rehab loan is pretty much a type of mortgage loan that is commonly obtained in real estate investment. It is used as a means to facilitate the rehabilitation (hence the name) of a standing property that is currently in a state of disrepair.

The disrepair can range from minor damages, which still diminish the property value, to major problems that render it unfit for living in. Either way, this being something that a good renovation team can deal with, the investment opportunity is obviously there. The only question is, how do you finance it? This is where the rehab loan comes, in and drives the project from a good idea in potential into buzzing activity.

Those loans make it easy for real estate investors to purchase and restore homes that are in bad shape. It is a win-win all around and positively influences the buyer (obviously), but also the seller (property in a certain state can be very hard to sell) and the whole neighborhood, potentially giving it one less house that looks like it went through a storm and a few bombings.

The Terms For Getting a Rehab Loan

There are a few significant differences between this type of loan and the classical, or traditional mortgage loan programs. The main difference is that they have flexible terms. If you have this type of loan, you will not have to make a full mortgage payment during its period. In fact, you will have the option to make no payments at all, simply covering the interest on the rehab loan and focusing on the renovation / construction project at hand.

The other difference is that you will likely have to agree to pay a higher rate of mortgage interest on it than you would in case of a traditional mortgage loan. Despite this fact, the flexibility of the rehab loan makes it a very attractive solution, especially if the goal is not just to save on the property purchase, but to have an immediate return on investment. This is the case when you are buying to sell as soon as the construction is complete, and property value went up considerably.

Rehab Loan Uses

You can use a rehab loan to finance a construction project of virtually any scale, from residential to commercial (up to and including shopping centers, plazas, warehouses and so on). The scale of the construction and other factors will influence the rate and the chances of you getting approved for it.

Another way to use this loan is to finance your own home reno project, and bolster its property value before putting it out for sale. Alternately, the rehab loan can pay for a home additions project that will provide more space for a growing family. This is great for families that have hard time to afford a bigger home, but building a new storey or making a livable basement will achieve just that, minus the costs of purchase and relocation. If you live in a home with a partially or fully paid-off mortgage, you can sometimes put it against the construction loan and better your conditions and chances of approval.

Because the renovation / construction more or less ensures a return on investment, you can actually often get up to 100 percent financing on your total purchase and construction costs, making rehab loans even more desirable.

Here at Edward Voccola & Co., LLC, our main objective is to make the process of obtaining a construction loan simple and hassle-free. For more information or to schedule an appointment, contact Edward Voccola & Co., LLC today and see your rehab project come to life tomorrow.