Can anyone provide me with a good explanation of the difference between a construction loan, a rehab loan, and a hard money loan or point me to a good resource explaining the difference? I’d like to fully understand the difference, the pros and cons of each, what types of lenders offer each, what situations you would use each for, the typical process for each, etc. For example, do both a rehab loan and a hard money loan require draws rather than getting all the money up front? Does a rehab loan look at your personal credit and, therefore, maybe give you better terms than a hard money loan? Does a rehab loan use the 65-70% formula that a hard money loan does or some other formula? Can a construction loan be used for rehab or is it only for new construction? Would you ever WANT to use a construction loan as opposed to a rehab loan or hard money loan? I could go on but I’ll stop there J
i think they all means the same things, it’s just differnt name. Hard money usually want to be first position. Rehab, and consturction loan can be in 2nd position. They do want you to put a signifacnt down (ie, 30%). That’s why i think private money investing is the way to go.
False-they’re not really all the same thing, but there is some over lap between them.
Taken from Bankrate.com-
“Construction loans are story loans. That means that the lender has to know the story behind the planned construction before they’re willing to loan you money. Because it’s a story loan, it’s not going to be standardized like mortgage loans underwritten to Freddie Mac or Fannie Mae guidelines. That said, there are some common features to a construction loan. Construction loans typically require interest-only payments during construction and become due upon completion. Completion for homeowners means that the house has its certificate of occupancy.”
Unless you’re planning on doing some development, like a new subdivision going up or you’re building your own house, a REI probably isn’t going to use a construction loan.
A rehab loan is a generic term to include any mortage instrument that includes money for not only the acquisition of a property but also money to fix that property up, or rehab it, hence the name. These DP and credit requirements vary greatly, depending on what source you use for your loan, and what particular region of the country you may be in.