Rehab Loans – Are There Additional Costs for Rehab Loans?

Rehab Loans – Are There Additional Costs for Rehab Loans?


What other expenses are involved in the closing?
Well, as we have discussed earlier, you do pay the appraiser and the inspector to come
out and value the property. We will set that up, but Rehab Financial Group has no financial
interest in that. You pay those professionals directly, so those expenses would have to
be accrued and again those amounts will vary depending the location of the property, whether
it’s a 1-family, whether it’s a 4-family, and the complexity of the work that needs
to be done there. Also at closing, there are other 3rd parties that are paid, such as the
title company for closing the loan, for title insurance, notary fees, transfer taxes, prorated
property taxes – those are all things that are not part of our RFG’s fee structure and
are really determined by the title company and paid for by the borrower at the time of
closing, in addition to RFG’s fees. What’s the reason you order an appraisal and an inspection?
Well the appraisal is really the foundation on which we value the property to determine
the loan and how much we can loan. While we want to make every borrower as nice a loan
package as possible and we want to be able to fund 100% of the purchase and the rehab
costs, we do have to be mindful of the fact that property values do vary greatly and on
occasion, the borrower may not have as a good a sense of the real after repaired value of
the property as we think there needs to be. We just a confirmation of what that value
is and that’s why we hire a licensed professional to evaluate the after repair value of the
property. So they calculate the after repair, so that’s how you base the rehab loan? Yes,
they look at the borrower’s repair list to see what the borrower intends to do with the
property and then values the property from there. We also then do ask them to give us
an as-is value so we make sue that the price being paid for the property in its as-is condition
is appropriate and an income approach, so we can really get a sense of the property’s
value if it were a rental property. And what about the inspection report? What the inspection
report does for us, it is, it has the borrower provides their detailed inspection list, or
their detailed repair list, I’m sorry, to the inspector, and he will verify that that
list is thorough and complete. We’ve had people who’ve had forgotten to do front stairs or
not included a kitchen their estimate, or a bathroom in their estimate. And it’s just
a double-check to make sure that everything that needs to be done in the property to bring
it to code, make it rentable, make it salable, make it financeable, is going to be done to
the property and so that it will reach it’s fullest value potential. He also verifies
that the cost being associated with each of those repairs is appropriate for the repair,
for what the repair will cost. We have a lot of people that say, “well I’m a contractor
and I’m going to do the work myself, so I’m not going to inched a labor component. Is
that okay?” And we explain to them that is not okay because in the unlikely event that
the loan defaults, and I, and RFG has to foreclose on the property, it’s unlikely that as the
defaulting borrower you’re going to finish the work without charging labor. So we have
to have a reserve there to be able to fund finishing the property ourselves if that’s
what happens.

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