We do a lot of hard money rehab lending in California and have various programs available for this type of financing. With the various lending requests I thought it would be good to put a post together looking at the different options available to investors looking for a hard money rehab loan. While there are many options available, most fall under one of two categories - loans based on purchase price and loans based on the as complete value.
The loans based on purchase price tend to be less costly than those based on the after repair value of a property. We have programs that will lend up to 75% of the purchase price. On a case by case basis sometimes up to 80%. These loan programs vary based on the length of term. Typically speaking, the longer the term requested the lower the loan to value will be. For example, someone wanting to buy, fix and hold a property for rental may want a five year loan term. In most cases we will max out at about 65% of the purchase price, maybe 70%, for a five year or longer term.
For the shorter term loans the loan to value can get more aggressive. On a 9 month term loan we can typically help finance up to 75% of the purchase price, sometimes a bit more. This is possible all the way up to about a 3 year term, at which point the loan to value will begin to fall. In addition, on the shorter 9 month term loans we have programs available that will defer about 60% of the costs until the loan is paid off, either through sale or refinance.
The other general hard money loan options for rehab transactions base the loan amount on the after repair value, or the ARV. These loans typically will go up to 65% of the ARV of a property. They are much more aggressive than the loans based on purchase price, and it is not uncommon for the loan amounts to be larger than the actual purchase price of the property. With the more aggressive loan, however, also comes more cost.
These rehab loans based on ARV for California properties are typically set up to include a fund control account to be disbursed for the work to be done and an interest reserve account to make interest payments - typically for the first 4-6 months. The goal is to have all the funds required to finish the project built right into the loan so that the investor does not need to come out of pocket with additional cash once the loan has closed.
This is just a quick look at the types of hard money rehab loans available in California. For more information, visit our California rehab loans page or contact me directly to discuss your specific scenario.
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