Our guide details the best investor rehab loans to fund your fix-and-flip projects and maximize your real estate investment returns.
Investor rehab loans refer to any loan used to purchase and renovate properties. Generally speaking, there are three main types of investor rehab loans:
In our experience investing in real estate and issuing loans to other investors, we found that hard money loans are usually the best option for most investors because:
In this article, we cover the benefits of using hard money loans for property rehabs compared to conventional Fannie Mae loans. We also review what the entire application process looks like for borrowers. Finally, we discuss key considerations for choosing a lender to ensure a quick closing and avoid last-minute rejections.
Constitution Lending specializes in helping investors rehab properties with hard money loans. You don’t need to submit income verification or tax returns when applying, nor do you have to worry about having a high debt-to-income ratio. So, if you’d like to see what LTV and interest rates you qualify for, use our pricer to get an instant quote.
The first benefit of using hard money loans to rehab investment properties is that there's no income verification required, meaning you don't have to submit pay slips, tax returns, or proof of employment.
This has significant benefits, especially if you're a self-employed real estate investor, as larger banks typically make the application process harder for self-employed borrowers than salaried employees. They view you as "riskier" and require you to submit two years' worth of balance sheets, profit and loss statements, and client contracts to prove your business generates a stable income.
Fortunately, hard money lenders don't require these documents, making the application process smoother.
Additionally, hard money rehab loans don't have minimum credit score requirements like conventional rehab loans, which usually mandate a minimum 700 credit score for investment properties. Instead, they are more focused on the deal's economics, whether it makes sense, and the likelihood of the borrower flipping the property for a profit.
A limitation of conventional Fannie Mae and Freddie Mac rehab loans is that they consider your debt-to-income ratio a critical factor in your eligibility. If your debt-to-income ratio is too high — typically around 35% to 50% — they may reject your application due to perceived risk. This can make it difficult for real estate investors with a handful of mortgaged properties to qualify for rehab loans.
However, hard money lenders aren’t too concerned with your finances, so they don’t evaluate your debt-to-income ratio when underwriting. This means you can qualify for rehab loans regardless of how many mortgaged properties you already have.
In fact, hard money lenders can make qualifying for rehab loans easier the more properties you own because it shows that you have experience investing in real estate, thus, making you less risky than borrowers perhaps rehabbing their first property.
Another advantage of hard money loans is that they close much faster than conventional rehab loans. For instance, we at Constitution Lending can reliably close within seven to 14 days. There have even been occasions where we closed loans within four days.
Compare this to conventional loans, which take between 45 to 70 days to close. In our experience rehabbing properties, if you're sitting on a good deal (i.e., purchasing a property for 30% less than its actual value, for example), it'll rarely remain on the market for this long before a cash offer comes in.
Additionally, we found that these lengthy closing times also contribute to loans falling through at the last minute. This is because it exposes borrowers to changes in credit and lending requirements, so the borrower might be able to qualify when they first approach the bank, but after 70 days, the bank's lending criteria may have changed, leaving the borrower unqualified.
By using hard money loans to rehab properties, you can close quickly, reducing your time exposed to fluctuations in lending criteria.
The final advantage we'd like to cover is that hard money lenders typically offer larger maximum loan amounts than conventional Fannie Mae and Freddie Mac lenders. Hard money lenders like Constitution Lending can issue loans up to $3 million, while traditional rehab loans normally max out at around $1 million.
In addition, Fannie Mae and Freddie Mac rehab loans may restrict you to single-family and multi-family residential properties, whereas hard money loans can be used to rehab residential, commercial, and mixed-use properties.
Here's what the process of using hard money loans to rehab investment properties looks like from a borrower's point of view:
Read more: DSCR Loan Requirements: 5 Key Factors Lenders Consider
In our experience both rehabbing properties and financing deals for other investors, we find that borrowers should consider two key factors when choosing a hard money lender:
A common issue we hear from borrowers is that their loan applications are rejected right before closing. This often occurs because borrowers are dealing with loan brokers — intermediaries who connect them to lenders — rather than the lender themselves.
Since loan brokers don’t use their own capital, they often don’t know the specific criteria a borrower needs for qualification. This means they can’t review your paperwork themselves and instead have to request underwriting from the lender to learn whether you qualify.
This often leads to an initial “approval” from the broker, with the hope that underwriting will go smoothly. However, if the lender rejects the application, borrowers may end up having invested weeks in the loan application process and now have to find a new lender.
At Constitution Lending, we’re direct lenders using our own capital to fund your loan. Since we’re the decision makers and understand our lending criteria, we can provide a definitive yes or no regarding your eligibility immediately after you submit your documents. We don’t require weeks of underwriting before getting back to you.
If we approve your loan at this stage, it’s likely to proceed smoothly. If we identify any issues with your application, we’ll communicate this with you immediately, so you can focus on fixing it before applying again.
We’ve noticed that larger banks usually take between 45 and 70 days to fund renovation projects. In fact, even some hard money lenders can take upwards of 30 days to close.
This lengthy application process makes it challenging to compete with cash buyers, which is another important factor to consider. The best hard money lenders can fund renovation loans within seven to 14 days.
At Constitution Lending, we can close quickly because our automated pricer and documents portal speeds up the application process.
When applying for a rehab loan, you can enter details such as the property’s location, rehab budget, and approximate after-repair value into our pricer and see what LTV and interest rates you qualify for.
You can then play around with the value of the property, LTV, and rehab budget to see how these factors influence each other. This way, you don’t have to sit on a call with a loan officer for nearly an hour to learn what terms you qualify for.
You can choose one of the loan options, enter your email address and full name, and we’ll send you a term sheet and pre-approval letter, as well as access to our documents portal. Here, you can submit documents such as the scope of work, cost estimate, purchase contract, proof of insurance, entity documents, and an appraisal report (we can do the appraisal if you don’t have an appraisal report).
Finally, we review the documents and fund your loan within seven to 14 days. If you want to close even faster and have all the documents ready, we can close in as little as 4 days.
The Fannie Mae HomeStyle Renovation Mortgage program allows borrowers to buy and renovate their homes on the same mortgage. You can also qualify if you have already purchased a property and do some home improvement.
However, there are a few differences in terms of eligibility; mainly, the Fannie Mae loan program can be used to purchase second homes, while the FHA 203(k) program is mainly for primary residences.
An investment property line of credit is a financing option that allows borrowers to borrow money against the property’s equity. They can then use this loan to renovate the property and potentially sell it for a profit.
As a simplified example, say you own a rental property with a purchase price of $100,000 and have $20,000 home equity. You can cash out that $20,000, use it to rehab the property, and potentially sell it for $140,000, earning you a $20,000 profit.
If you’d like to see what loan terms you qualify for, use our automated pricer to get a quote within seconds.
| Qualification | Requirement |
|---|---|
| Minimum and maximum loan amount | $150,000 to $3,000,000 |
| Type of property | Non-owner occupied single-family, multi-family, and 5-8 unit properties |