Rehab loans can be used for buying and fixing an existing property. Through rehab loans, you can borrow an amount that is equivalent to the after repaired value (ARV) of the property. The ARV is based on the appraiser?s estimate. For instance, when the appraiser declares that your rehabbed or remodeled property is worth $250,000 once completed, then you will be able to loan 60% to 90% of that amount to purchase a property or renovate it.

In applying for a rehab loan, there are two important factors that you need to consider: the amount of money that you currently have and your current credit score. When you are qualified to loan 90% of the ARV, you are required to pay 10% of your down payment in order to complete the full 100% of the budget to finish the project. Your contribution may come from cash you have deposited in the bank for at least two months, a gift from a close relative or a secured credit line like home equity line of credit. On the other hand, if you cannot meet these requirements, ask your broker for other alternatives. Your contractor may be required to create a budget plan for the project as well as its timeline. The fund for your rehab project will depend on the budget plan and timeline from your contractor.
After the completion of the project, the majority of the lenders will offer to make your rehab loan a permanent loan. They will also charge you with certain percentage that varies from the agreement between you and the lender. Interest rates may range from 3% to 12% of the loan amount. However, when you did not pay any down payment, the interest rate may reach 8% to 15%.