A “Step-by-Step” Guide to Borrowing from Rehab Financial Group
Borrowing money is a great way to enter the house flipping market. For real estate investors who don’t have the cash on hand to finance a flip independently, funds from a private rehab lender can be used to acquire and improve a distressed property.
Even experienced flippers frequently use borrowed funds to complete larger projects while staying financially flexible. A reliable rehab lender is an important part of each real estate investment team.
If you are thinking about using borrowed funds to start or expand your flipping empire, we can help. From house hunting, to planning improvements, to hiring contractors, it can be overwhelming as you try to keep every aspect of your project organized.
To help make the process go as smoothly as possible, we’ve outlined each step of the borrowing process below. We know most house flippers aren’t loan or mortgage experts, so let us guide you through the process our borrowers go through at Rehab Financial Group:
A) How to Apply for a Rehab Loan:
- The first step to getting a rehab loan is to reach out to us by using either our online, pre-qualification form or by giving us a call. This initial contact will help us determine if you are likely to qualify for a loan with us.
- After talking through some details about both your project and your financial situation, we will send you an editable PDF application.
- The application includes several forms, disclosures, tax return releases, and checklists. You will need to fill out and sign ALL parts of the application and provide copies of the other documents requested on the checklist at the front of the application.
- We cannot process your application until we have all of the application materials so be sure to double check that you have provided us with everything requested on the checklists.
- A small, one-time only application fee will be charged to you to cover the cost of accessing your credit report as we review your application in full.
- Your credit report, along with the rest of the application materials will be sent to our underwriter for approval.
- You will usually receive an approval or denial letter within one business day of complete application submission.
B) How to Get Pre-Approved and Request Proof of Funds Letters:
- If you are still in the house-hunting phase of your project, we can pre-approve you for funding to help you narrow your search to a specific price range.
- We’ll respond to your application with the maximum amount you qualify to borrow.
- As you find properties on which you’d like to make offers, let us know what the offer amount is and we can get you custom proof of funds letters to present with the offers. We can usually get these to you within a few hours on business days.
- If you are already under contract on a property, we will move directly into the inspection and appraisal phase if you are approved.
C) How to Prepare for the Closing Table:
- Once you are fully approved with us, you’ll need to submit the agreement of sale and estimate of repairs as soon as possible.
- Future draws will only be disbursed as each line item in the estimate is fully completed. The estimate of repairs should match the project timeline closely.
- Once we receive the agreement of sale and estimate of repairs, we will contact the Appraiser and Inspector to order the appraisal and inspection reports on the property.
- These professionals will contact you to schedule their appointments at the property. You are responsible for paying them for their services when performed. The approximate cost of appraisal is $500, while inspections typically run between $250-350.
- Each of these professionals will call you to confirm the appointment times and let you know acceptable forms of payment.
- The appraiser will complete a report establishing the “as is” value of the property before repairs. They will also establish an “after rehab value” for the property based on the repairs you have listed on the estimate of repairs.
- Lastly, they will develop an income approach value of the property, if applicable. This will all be in the report that they deliver to us.
- The inspector uses the estimate of repairs that you provide as a guide to make sure that all repair items are satisfactory and priced out properly. They also make sure every repair is well itemized out for draw releases. They will send a report directly to us.
- You and your realtor are responsible for ordering the title & obtaining a homeowner’s insurance policy. After you order these, you need to provide us with the title and insurance company’s contact information so we can provide the required loan information to them.
D) How to Get a Draw Release:
- When a line item on your list of repairs is 100% complete, you should contact the inspector to evaluate the work. Be prepared to pay the inspector between $75-$200 for each visit.
- The inspector will submit a report listing the work that is 100% completed. At that time we will write a check for the amount of that line item and mail it to you. If you would like to speed up that process we can wire the funds to you for a small wire fee (same day delivery).
- We will add a standard 10% contingency to the bottom line total of the completed repairs inspection report if there is not already a contingency on the repair list. Typically there are some additional repairs that may come up during your project that were not foreseen on the original inspection. You will need to pay out of pocket for these until the final draw on the contingency. The contingency is designed to reimburse you in the end as long as those extras don’t exceed the 10% of the loan total.
- We do not allow you to draw on this 10% contingency throughout the project, however, it will be released back to you in your final draw release when the project is complete.
E) How to Request a Rehab Loan Payoff:
- When you’ve finished your rehab and have accepted an offer on the property, let us know your settlement date ASAP.
- We must have a payoff request, “paid through date”, and signed authorization to release information in writing (email is preferred) from your title company or attorney 10 days in advance. This email should be sent directly to our controller, MaryAnn (firstname.lastname@example.org).
- We will send the payoff request to the title company directly. You should make it clear to them that you want the funds wired to us on the day of closing to avoid accruing interest for each day the payment is delayed in getting to us.
- We will prepare up to two payoffs for you or a third party (title company or lawyer) during the life of the loan. Additional payoffs will incur a fee of $25 per payoff.
Don’t Worry, We’re Here to Help
Relax. Any rational house flipper will be nervous the first time they borrow funds. They will have to balance all the concerns of the rehab as will as all of the financial ins-and-outs to be successful. Use all of your resources to stay on top of things. Ask questions when you need help and don’t forget to use your network for money saving tips and tricks.
We know there is a lot to worry about but we are here to help. After a few flips you’ll be an expert too!