Need Advice on Obtaining Rehab Financing for Gut Rehab of SFH

Asked by Phil, Chicago, IL Fri Jun 20, 2008

Any advice will be greatly appreciated. I am purchasing a foreclosed SFH in need of a complete gut rehab, and need advice on obtaining rehab financing. In particular, is this better done in conjunction with the purchase financing or separate? And are there certain banks that specialize and/or are more open to this type of financing than others? This could be relatively short-term financing at a somewhat higher rate (anticipating refinancing after project complete). Amount will be in neighborhood of $200K.

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Don Tepper, Agent, Burke, VA
Fri Jun 20, 2008
Two suggestions:

First, look into HUD's 203k program. Here's a link:

Second, look into hard money loans. In today's market, hard money lenders typically will lend up to 65% of the after-repair value of the property. So, for instance, if the property after fix-up will be worth $500,000, then a hard money lender would lend $325,000 based on the value of the property (the equity) itself. Out of the $325,000, you'd have to both purchase the property and do the repairs. I don't know what hard money lenders charge in Chicago, but in many areas it's around 5 points and 15% interest. The maximum term of the loan is often 6 months, sometimes a bit more. By that time, you'd either have sold the property or refinanced it. (Don't worry about the 15% interest. It's the 5 points that hurts.)

Hope that helps.
1 vote
Will, , Atlanta, GA
Sat Jun 28, 2008
Ineligible improvements:

. Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall;
· New construction (including room additions);
· Repair of structural damage;
· Repairs requiring detailed drawings or architectural exhibits;
· Landscaping or similar site amenity improvements;
· Any repair or improvement requiring a work schedule longer than six (6) months; or
· Rehabilitation activities that require more than two (2) payments per specialized contractor.

A borrower may not use the Streamlined (k) program to finance any required repairs arising from the appraisal that do not appear on the list of Streamlined (k) Eligible Work Items listed above or that would:

· Necessitate a "consultant" to develop a "Specification of Repairs/Work Write-Up";
· Require plans or architectural exhibits;
· Require a plan reviewer;
· Require more than six months to complete;
· Result in work not starting within 30 days after loan closing; or
· Cause the mortgagor to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (FHA anticipates that, in a typical case, the mortgagor would be able to occupy the property after mortgage loan closing).
0 votes
Will, , Atlanta, GA
Sat Jun 28, 2008
Everyone's offered some great advice. Here are the pro's and con's to two financing options.

Option One

You can obtain a FHA 203k loan.


Up to 110% financing of after improved value. No credit score requirements


Owner occupied only. Limited to non-structural repairs. Maximum 35k in renovation cost.

Option Two:

Conventional Renovaton loan.


Owner occupied, second home and non owner occupied are allowed. Renovation cost can go up to 75% of after-improved-value. All renovations are allowed.


Owner occupied- Up to 95% financing and 680+
Owner occupied and second home-Up to 80 and 90% financing

Let me know if this was helpful.
0 votes
Inspector Mi…, , Plainfield, IL
Mon Jun 23, 2008
Without a doubt, the FHA 203k is the way to go. You roll the mortgage and rehab costs into one loan at a competitive interest rate. -Inspector Mike Savage
0 votes
Jim Cavoto, Agent, Denver, CO
Sun Jun 22, 2008
This al depends on if your going to live in the home while you rehab it - if you are a 203k program is a great way to go, and is a lot cheeper than most other loans.
If your doing this as an investment, to fix and flip or fix and hold, Private & Hard money lenders are going to be your friends, and if you are planning on doing this over and over, these are the guys you want to know-the money is not cheep! but there is no limit to how many loans you can do at a time, it is based on the project, so if you have 4 homes that you can find, these lenders will allow you to do 4 at a time, if you can show you can service the debt. The basic loan programs are 90% of the purchase price and 100% of the rehab money, as long as you don't go over 60-65% of the rehabed value- thats the good news - the cost of the funds will be around 14% plus points of 5-7 - there are a number of lenders that this is all they do, each one has different sweet spots for the deals they want, and if they are full doc or stated.
One good thing about these programs is for the most part they won't let you make a mistake, because they wont lend over 65% of the completed value-
you can check out
Brookview Financial
or just google "rehab funding" and on the first two pages you will find 5 or 6 lenders that this is all they do.
0 votes
Wayne Beals, Agent, Chicago, IL
Sun Jun 22, 2008
I have worked with a lender with 203K before. The hardest thing is getting good contractors to work with the 203K payout terms. Traditional construction loans are currently very difficult (and expensive) to secure. Another good alternative is Neighborhood Housing Services (NHS) and South Shore Bank. Both organizations use non-traditional guidelines for lending on construction projects. They take a common sense approach to the process and will not get involved if they believe the project is too risky.

If you need contacts for these programs, email me and I will provide.
0 votes
Greg Zaccagni, , Illinois
Fri Jun 20, 2008
Don is on the money. Constuction/permanent loans have largely been eliminated but if you intend to occupy the home yourself the 203k program is likely your best choice. If you do not intend to occupy then hard money is likey to be your only option.
0 votes
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