Financing in 19066>Question Details

Roti, Home Buyer in 19010

how does the ARV loan works?

Asked by Roti, 19010 Mon Feb 18, 2008

I am thinking of buying a fixer-upper. Some extensive work needs to be done. Just wondering how does the ARV loan works?

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If this will be an owner occupied home ,I might have a program that fits your needs. On Our Rehab loan, we can lend 95% of after repair value. Borrower needs to put a 5% down payment. The best part is that the interest rate is really good. A conforming fixed rate. This is not the FHA 203K. This loan is much easier to close than the FHA program. If you are buying in Pennsylvania, contact me for info.
1 vote Thank Flag Link Tue Feb 19, 2008
FHA has the 203K Rehab Program.

I have provided the link for you, below.
1 vote Thank Flag Link Mon Feb 18, 2008
Hard money lenders also loan based on ARV. Here's how they work: You find a property that, after repairs and fix-up, would be worth $X. Take 70% of $X. That's the amount they'll lend. And it has absolutely nothing to do with your credit or credit score; the loan is being made on the value of the property.

To work through an example, let's say a property, after fix-up, would sell for $500,000. Take 70% of that. (Some now are down to 65%). So a hard money lender would lend you $350,000. That's to purchase the house and to do any needed repairs.

Hard money is quite expensive--generally around 5 points (that's what really hurts) and 12%-16% annuallized...although many hard money loans are for just six months. So, on the property with an ARV of $500,000, a hard money lender might lend you $350,000, and charge you $17,500 in points and $3,500 a month in interest.

Remember: You have to pay the points up front, and you'll also need money for the rehab. It's certainly possible to do it without any or much money out of your pocket--say you can acquire that post-rehab $500,000 property for $275,000. You'll "receive" $350,000; you can pay your $17,500 in points from that and still have around $50,000 for the rehab. Note that if the hard money loan includes money for a rehab, the lender will set up "draws" so that the money is released at 3-4 different stages, as the work is completed.

There are also some not-quite-hard-money lenders, such as Brookview Financial. There's also private money out there--generally around 12%, but with far fewer points. Usually, though, you'll need a track record to borrow from private lenders.

Hope that helps.
1 vote Thank Flag Link Mon Feb 18, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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Hi Roti, when a lender determines how much to loan you for the purchase and repair of a property, often called a rehab or renovation loan, they use ARV or "after repaired value" to determine how much you can borrow. Just as the term implies, they will use an appraiser to establish comparative values of other properties in the area of your project. Similar homes in the condition you will be eventually making yours into.

The lender establishes what the After Repaired Value of the property will be given the renovations you plan to do. They will then lend you 70%, 80% or 90%, whatever their guidelines are, toward the purchase and repair. There are quite a few lenders out there who offer different max loan amounts and loan terms depending on the credit and capacity of the borrower. If you have excellent credit and some cash in the bank, you could borrow as much as 95% of the ARV and pay fewer fees, if you have challenged credit and no liquid assets you may be capped at 60% or 65% and have to pay significant fees.

-Dale Archdekin
Web Reference: http://www.liveinphilly.net
1 vote Thank Flag Link Mon Feb 18, 2008
We are specialists in lending to contractors,carpenters,handyman or jus about anyone who wants to buy a property and fix it up.They are usually foreclosures or short sales that can be purchased at a huge discount.We will then lend you 70%, 80% or 90%, whatever we determine the guideline to be for your area ,property risk etc.. toward the purchase and repair of that property.We are unique in that we do "NOT" have a maximum loan amount and our loan terms are incredible !!! We will work with you If you have poor credit and/or excellent credit.We do require you to have some skin in the game = you need to put some cash into the property.Call us to determine what category you fall into....(310) 984-0496 .
0 votes Thank Flag Link Sat Oct 23, 2010
This can vary from lender to lender and it can vary from what type of property you are going for.

Basically, an ARV (After Repair Value) Loan allows you to borrow a certain percentage of what a property should be worth after all the repairs are complete. For instance, you borrow $240K for a distressed property on the market for $175K which, after all the repairs are done, should be worth $300K.

These type of loans are usually difficult to get because you need a high FICO score of around the min 600s. Yet you could also tie it into an interest only loan if you're going to fix up and resell the property quickly.

Hope that helps. Good luck!

Terrence Charest, e-Pro
Century 21 Associates
905 Easton Road
Willow Grove, PA 19090
Cell: 267.614.1494
Office: 215.659.5259
0 votes Thank Flag Link Mon Feb 18, 2008
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