I just wanted to know if these are the correct steps for a rehab.
Get pre approved financing from HML to finance a project for you-what does this amount depend on? I am sure multiple factors. But just give an example for a beginner with 650-700 credit, stable job, and no other debts.
Find the rehab property-visit property
Set up appointment for two or three General Contractors to come with you to assess repair- how expensive is an estimate?
Call realtor and make offer
Close on property-if offer accepted-does this mean just come to close with earnest money and lawyers handle the rest?
Repair property- how often should i run by the property to determine if things are going as planned?
You have the basic picture. But there’s a few things I would do differently. For example:
Get pre-approval letter.
Find property of interest.
Run the numbers (comps, FMV, ARV, price/sq. foot,etc…) to even see if it qualifies as a profitable venture.
Make offer (to make an offer you’ll have to write an earnest money check to the seller that will be placed into escrow by the listing agent)
Send your contractor to get an exact bid. Then give the bid to your lender.
If the seller accepts your offer, hire a home inspection. Make your contract contingent on “acceptable home inspection” that way you can back out if needs be.
If the deal fits the 70-80% ARV formula and is profitable, close on the deal.
Rehab the house. During the rehab, list the house on MLS and in the paper. If you sell the house before it’s even finished, that’s awesome.
Sell the house and take your fat check to the bank
Start on deal number 2.
Not too hard, but it does follow a logical sequence. Hope this helped.
There are a gazillion different ways to get financing for rehabs. I’ve never used an HML, but wouldn’t be opposed to doing that. I just don’t like the idea of points. And some of the HML’s I talked to wanted me to pay for the repairs upfront and then they would reimburse me. NO NO.I’ve never worked with a private lender either, but have heard great things from colleuges who have. It just depends on the people you know. Since alot of my friends know I do this they offer to lend me money at interest, so that it would be a win/win. It’s my personal opinion though, that borrowing from friends is the best way to end up enemies. What I recommend you do is just search for different lenders that meet your needs. Some banks will do rehab loans, and might not ask for points, etc. There are 2 frequent posters on this website (mortgagepro, and mortgages). Talk with these guys and see if they can get you lined up. Take care.
Hey Chris
One more question. When you get a conventional 0-point loan, do you get your seller to pay for the closing costs? With the lenders I’ve talked to, closing costs come out to about 3% of the sale which can be significant.
Closing costs average about 3%, you’re right. Be aware that not all sellers will pay for closing costs. But it never hurts to ask. I just bought my own personal house and the builder is paying for half of the closing costs. Not a great deal, but I liked the house. Each type of loan product will be different. Some brokers may be able to appraise the house so that you can finance some of the closing costs into the loan. My broker told me about that, so I am assuming its a normal everyday practice and isn’t illegal (I never try to do anything illegal). Just ask your lender. They should be able to give you a good faith estimate of how much your payments will be and how much your closing costs will be. Get their bid in writing. Shop around for the best deal. If you have a good mortgage broker, they’ll be able to do some creative things if you find yourself in a numbers crunch. The stronger your credit rating, the more options you have. Good luck.