Low Down Payment Rehab Loan
Many Real Estate Investors prefer rehab loan financing programs with low down payments. This allows them to qualify without having to invest large sums of money whether they have it or not. There are many programs available with down payment as low as 10%. The problem for lenders is that type of loan is a much higher risk. That is why in order to reduce that risk private lenders have underwriting guidelines that are more restrictive when compared with programs requiring a larger cash investment.
There is a program that investors can qualify for as little as 10% down payment. This rehab loan is like other programs except the down payment is based on the as is value. This is a big advantage for real estate investors who purchase property below market value. This program requires a maximum loan amount of 70% to 80% of the as is value, but no more than 90% of the purchase price. For example:
- Purchase price is $100,000
- As is value is $120,000
- 75% of $120,000 is $90,000
- 90% of $100,000 is $90,000
In this example the borrower is purchasing the property well below as is value and 75% is equal 90% of the purchase price. In the case the 10% of the purchase price is the lowest number, that is the loan amount calculation to be is used. Ultimately, this is a 90% ltv based on purchase price. Conversely, if the A.I.V (as is value) is lower and the investor is not purchasing the property at a discount to the market value there will be a higher down payment.
Example Number 2:
- Purchase Price is $90,000
- As is Value is $100,000
- 75% of 100,000 is $75,000
- 90% of $90,000 is $81,000
In example number 2 the base loan amount will be $75,000. The rule is 75% of A.I.V. or 90% of the purchase price whichever is less. The risk to the lender is based off of the true value of the property, not the purchase price. The risk is always greater if the borrower has no skin in the game. Therefore the program requires at least 10% of the purchase price.
Rehab Loan Benefits
The other guidelines that are really benefits of this very good program are as follows:
- Minimum Credit Score – 550 – soft credit pull only (does not show as an inquiry on credit report)
- Maximum Rehab – 100% up to 75% of the after repaired value
- Reserves Requirement – 6 months of mortgage payments (we do not verify funds to close – only reserves)
- No seasoning of funds required
- First time investors have a 5% lower loan to value
- Must close in entity name
The terms of this rehab loan is it is a twelve month interest only loan with no pre payment penalty. Rates are from 9% to 12.5% depending on loan to value and the experience of the investor. Points are 3% to 4.5% depending on loan size. Minimum loan is $75,000 and the maximum loan is $2,000,000. Loans over $1,000,000 require a 20% down payment on the purchase price and up to 100% of rehab.
Whether you are a seasoned investor or a first time investor, this could be the best program for you.