Are You a Real Estate Investor? Here's Your Guide to Getting a Rehab Loan in Kansas City

For over 10 years, there has been an increase in the average gross profit per home as well as real estate investors. It is thus no surprise that distressed properties in metropolitan areas such as Kansas provide great opportunities for investors in real estate.

As a matter of fact, a recent study showed that flipped houses were purchased below the estimated market value of 26 percent.

If you are a real estate investor, you know that you have to deal with renovation costs and other high prices. Thus, a long-term rehab loan will benefit you.


Well, keep reading. You will know how to go about getting a rehab loan in Kansas City.

What is a Rehab Loan?

Rehab loans help purchase and renovate residential properties by both long and short-term investors. They bring together the cost of renovation and purchase of the property into a single short-term loan.

What types of rehab loans are available?

Let's have a look at the various types.

Types of Rehab Loans

Generally, rehab loans consist of two types. These are permanent rehab mortgages and hard money rehab loans. Permanent rehab mortgages are used by the long-term investors only to purchase a property while holding it as a rental.

There are two options while using a permanent rehab mortgage. These are Home-style Renovation (HSR) loans and FHA 203(k) loans.

The Home-style Renovation (HSR) loans finance only a unit investment property and FHA 203(k) loans are used for primary residences only.

The hard money rehab loans are used by the short term and long term investors for different functions. The short-term investors use rehab loans for acquiring, renovating and selling a property

The long-term investors use this rehab loan to renovate a property before refinancing.

Hard Money Loan Rates, Terms & Qualifications

Most rehab lenders offer rehab loans to investors. A wide range of fees, terms, rates, and qualification would be proposed by a small local hard money lender just because they have the ability to work with exclusive borrowers and projects.

The national lenders have a standard in qualifications, terms, and cost of borrowing.

Hard money rehab has a general interest rate charge ranging from 7.5% to 12% which would be paid within a short period of time which reflects its risk characteristics. In most cases, interest-only payments would be paid at the end of the loan before paying the full principal.

Rehab loan points are the cost of money borrowed. They are fees that the rehab lender charges for lending money which are part of your closing costs. This range from1-10% of the loans amount.

Rehab loans have a general repayment term period of 12 - 36 months with no penalty for prepayment. This allows you to pay off the loan as soon as you can while your holding cost reduces.

This time frame is sufficient most times for the investors to carry out their exit strategy in the completion of their renovations

There is a title and property insurance policy requirement by most hard money lenders. Take note that a property insurance policy is 20 percent higher on an unoccupied property or one that is undergoing rehab, compared to the policy of a usual homeowner.

After-Repair-Value (ARV)

Rehab loans are single loans which combine rehab budget and a property initial purchase. A property's after repair value ratio is used by hard money lenders to determine the maximum loan amount.

The ARV ratio is determined by the hard money lenders by calculating the expected fair value percentage of the property after it has been renovated.

Rehab lenders also issue loans centered on the loan to value (LTV) of the property, most times 90 percent of the property's original purchase price. This is for when you want to buy a property in an excellent condition.

Hard money lenders usually give out loans centered on the properties expected ARV percentage, when you want to invest in a property that requires renovations.

Unlike many other rehab lenders that offer less, the private money lenders offer the highest rehab loan amount equivalent to 75 percent ARV.

To improve your credit profile, you have to have more experience with rehabs making the ARV higher. This means that investors must cover at least 25 percent of a properties ARV or more with their personal revenue when investing with a rehab loan

Most lenders want the investors to make an upfront payment for the costs of renovation, after which the investors would submit an invoice. This invoice would be used for reimbursement by the lenders.

This process is put in place so as to ensure that the investors are totally involved and the lenders are protected from defaulting

Qualifications for a Rehab Loan

Rehab loans have qualifications that differ. In most cases, the lenders must have a solid bank statement, 25 percent down payment, and a reputable real estate skill.

Before the lending process takes place, the property has to be in an area the lenders are okay with.

Where Can You Find Rehab Loans in Kansas City

Hard money loans have a poor reputation among investors. However, a lot of reputable real estate investors and high ranked companies make use of them.

If you are looking to find a rehab hard money loan, then get in contact with a nationwide lender that can fund you in 15days while offering prime borrowers competitive rates.

The lender requires an order title insurance and title search run by a title company immediately after the rehab loan gets approved. The same services can be provided at the same cost by a title company recommended by your real estate agent or rehab lender

Your lender would give you the closing costs immediately informing you on how soon the loan can get closed. A location, date and time for closing the loan would get scheduled by the title company. You gain ownership of the property immediately after the loan gets closed

Keep in mind that the cost of total purchase process doesn't end with application fees and lender points. The closing cost is also involved between 2 percent to 5 percent.

Steps to Renovating a Property with a Rehab Loan

These steps will enable you to have a full grasp of what to be on the lookout for during the process of obtaining and using the hard money rehab loan. They will explain what you need for getting to flip and close a property as well as the pre-qualification stage.

Get Pre-Qualification with a Hard Money Lender

Hard money lenders usually have a process of pre-qualification that assists investors in knowing the costs, ARV ratios, fees and other terms. This process takes a few minutes and it allows real estate investors to progress with confidence that the money needed for their project is available.

During the pre-qualification process you would be required to provide the following:

Fundamental Questions

Few fundamental questions about you and the potential property would be required. Information like the property address, the amount offers that you expect, your tax ID and your name will be required.

Personal Credit Scores

Your personal credit score should be over 550 but you can check your credit for free.

Personal Bank Statement

Your bank statement for about 2-3 months will also be required.

Get Approved for a Hard Money Rehab Loan

When the initial stage gets completed, you should work on getting approval for the loan. To do this, you have to be specific about the property by narrowing your search down. If you have not prepared your documents like a list of past projects, get to it.

The moment you have found the best property, make an offer and the lender will assist you with underwriting your loan approval after your signed purchase contract has been received.

If you have been pre-qualified before and you desire to add another property then you will need the lender to approve each of the properties.

To get your loan approved, you would need to prepare the following:

Purchase Contract

Once an offer has been made on a property, you have to mail the purchase contract to your lender. After this, you will have to fill a loan application and pay a fee for application as well.

This document states the price that was finalized and the purchase between the seller and buyer. This is the reason why the hard money lenders want to see the document.

Property Appraisal

The rehab lenders order their appraisal to know the expected ARV as well as the current market value of the property.

When you complete the application, the lenders organize two appraisals. One is "ARV appraisal" while the other is "as-is appraisal". These appraisals tell the lender the current market value and expected value after renovations.

List of Previous Projects

This is what the hard money lender uses to weigh applications for an investor's past rehab experience. Lenders like to see about 2 or more projects.

To prove your previous projects, lenders usually ask for a prior purchase agreement, proof of finance of each project, and a receipt of sale.

If you are a new investor, you would have to work with a licensed contractor that has enough experience.

The scope of Rehab Work

The scope of rehab work explains in details the renovations you intend to do. This helps to determine the ARV of the property.

Contractor Bids

For rehabbers that are new to the business, lenders require the contractor bids as part of the rehab work scope.

Getting Finances

If the lender has made a decision to go ahead with the deal, the breakdown of the fees will be given to you like their fees, closing date, and interest rate. If you agree to the terms of the rehab loan, it will get funded but in part payments.

Carrying out Renovations If It Is Necessary

You can carry out renovation plans if the need arises. It must get done in a timely manner and properly. This is because the longer you hold on to a property, the higher the cost and lower the profit.

Leave the Property

Once you have finished renovations, you need to use a strategy to exit. This is done by financing into a permanent loan for a long-term investor and selling off the property for a short-term investor.

Wrapping Up

Rehab loans are good for businesses that involve renting properties or that need to get worked on a little. It offers investors loan on a short-term basis with quick approval times, interest-only payments, purchase of a house and renovation financing altogether.

For more information on getting rehab loan in Kansas City, contact us today.