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Ryan Huggins - Thousand Oaks, CA - Thousand Oaks, CA
Residential Real Estate and Investment Properties

Rehab loans are more complex.  They need quotes from licensed contractors and you'll be having a much larger mortgage since you'll be funding not only the purchase but also the rehab, over the next 30 years.

Jan 03, 2022 09:07 PM
Jerry Thomas-Construction Loans
Cranbrook Loans - Farmington Hills, MI
Construction Loans in MI, OH, VA, GA and FL.

There can be fees for inspections to confirm the work has been done and the added work/risk to the lender. Lenders love the simple rehabs, windows, roofs, HVAC, etc.. If you are planning to add/subtract walls or spend more than $35k on rehab, plan on a contingency reserve of 15% or more for unforeseen expenses. Take a close look at what the sale comps are going to be on the finished home, the appraiser will be doing the same. Don't over improve! 

Jan 04, 2022 04:01 AM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

As there are additional steps in terms of payouts, and inspections cost money, expect to pay some additional fees and possibly a slightly higher rate commensurate with the risk involved.

Jan 04, 2022 04:13 AM
Bob Crane
Woodland Management Service / Woodland Real Estate, EXP - Stevens Point, WI
Forestland Experts! 715-204-9671

A good question for your lender, likely it may cost more to gain flexibility.

We never go with conventional financing for our investments as we find it well worth a little extra interest to gain flexibility through inhouse financing.

Jan 03, 2022 09:02 PM
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA

From the perspectives of pricing (rates/fees) and ease-of-approval (the bank not nitpicking what type of improvements you are making), a simple cash-out refinance can be a viable option in most cases. That said, there is a definite niche for the rehab loan programs (and they can sometimes offer solutions on scenarios where a cash-out refinance is not possible). 

Thanks for looping me in Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets 

Jan 04, 2022 09:59 AM
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

I'd ask Jason E. Gordon he's one of the best lenders in Active Rain to use as a resource (and for purchase loans).

Jan 04, 2022 09:56 AM
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate

I strongly recommend you get connected with a local lender who can be your go-to person to help you better help your clients. 

Jan 04, 2022 07:49 AM
Lyn Sims
Schaumburg, IL
Real Estate Agent Retired

yes, last time I did an FHA 203K it was around a 1/2% when all was said & done. Sometimes that's your only alternative. Takes a long time to get done because of all the inspections.

Jan 04, 2022 05:56 AM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Caroline Gerardo would know this.

With the FHA 203K the downside is the time frames . . . time is money!

Jan 04, 2022 08:32 AM
Caroline Gerardo
Sun West Mortgage Corporation - Newport Beach, CA
C. G. Barbeau the Loan Lady nmls 324982

I can close a purchase or refinance conventional loan in four days.

For a rehab loan the borrower needs to have contractor estimates lined up. In many states I recommend two contractors who will vet the costs and get the numbers exact the same day. 

FHA 203k or Conventional Homestyle renovation loan or two other conventional reno products do not require more time for Underwriting and processing  with nominal cost differences.

Rehab has inspection fees at $150 approx per visit, general pricing add is .5- 1% point cost is often converted to interest rate long term,  impounds mandatory... Borrower takes out a larger loan than a standard so the payments over time are more.  

Your question as stated  "rehab loan to a conventional"  isn't exactly how products align -  there are: FHA rehabs,  conventional rehabs,  and Non QM rehab products. Each is meets different needs, different down payment, different FICO requirements and ins and outs.   Call me to chat about the deeper dive.  

Jan 04, 2022 11:25 AM
John Meussner
Mortgages in AZ, CA, CO, DE, FL, GA, MD, MT, NC, NJ, NV, OK, OR, PA, SC, TN, TX, UT, VA - Fair Oaks, CA
#MortgageMadeEasy Fair Oaks, CA 484-680-4852

Yes, but for small renovation/rehab items, there are conventional products that allow some repairs/renovations to be escrowed and funded through the loan.


For alternative renovation products like Homestyle, 203k, etc, fees aren't always different but rates on these products do tend to be higher.  That said, the interest is often far cheaper than what you'd see financing the same amounts on a credit card, HELOC, or through a contractors financing options.

Jan 04, 2022 10:17 AM
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
Carolina Life RealEstate & Relocation 919-602-8489

That's a really good question. There are many things to take into consideration including the alternative. Sometimes it is the best option if a buyer doesn't have the funds to do it on their own. 

Jan 04, 2022 08:43 AM
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Possibly. A good topic to discuss with your trusted local mortgage loan officer.

Jan 04, 2022 04:13 AM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

Any loan that costs more in time, inspections or has more risk, is going to be more yes.  It costs more.  But if you are working with a buyer that has no funds on hand to renovate a property, it is worth it to get in and refinance after work is done.


Jan 05, 2022 02:46 PM
Debe Maxwell, CRS | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!


Jan 04, 2022 08:16 PM
John Juarez
The Medford Real Estate Team - Fremont, CA

Thanks to out to the AR regular lenders who answered this question.

Jan 05, 2022 02:53 PM