Renovating a property is a great way to increase its value so you can resell it for a profit or raise the rent. If you already have a construction team lined up, the next step is to secure funding. How will you finance the purchase, labor, and material costs?
At ABL, we offer fast, flexible non-owner occupied renovation loan programs so you can focus on the work and maximize your returns.
What Is a Non-Owner Occupied Renovation Loan?
A non-owner occupied renovation loan is a type of financing used to renovate investment property. Typically, it covers the cost of buying and renovating real estate. At ABL, we can finance both with our fix-and-flip loans or just the renovation with our cash-out refinance loans.
Unlike owner-occupied renovation loans, non-owner occupied renovation loans are for borrowers who do not intend to live in the property. The distinction is important because lenders underwrite loans for investment properties and primary residences differently. Furthermore, if you lie about your intended use of the property, you could be committing occupancy fraud.
ABL loans are exclusively for non-owner occupied properties. We’ve helped investors nationwide take their real estate investment businesses to the next level with flexible financing.
Qualifying for Non-Owner Occupied Renovation Loans
To qualify for a non-owner occupied renovation loan, you must meet some basic criteria:
Credit score. Most lenders require that you have a minimum credit score to demonstrate your creditworthiness. At ABL, we require you to have a score of at least 660.
Experience. Your experience renovating homes may affect your ability to qualify for a non-owner occupied renovation loan. However, ABL offers fix-and-flip and cash-out refinance loans to investors of all experience levels.
Loan Size. Most lenders limit the size of loans they’re willing to issue. At ABL, we’ll extend fix-and-flip loans for anywhere from $75K to $10M and cash-out refinance loans for anywhere from $100K to $10M.
Property type. Always check what property types a lender allows. At ABL, we finance both single-family and multifamily renovations.
Income. Some lenders require a minimum income to ensure you can repay the loan. However, hard money lenders like ABL don’t have a specific income requirement, focusing instead on the value of the collateralized property.
Advance rate on rehab. This is the percentage of the renovation costs that a lender is willing to finance. ABL can advance up to 100% of the rehab costs and 85% of the purchase costs.
Non-Owner Occupied Renovation Loan Terms
Once you qualify for a non-occupied renovation loan, here are the most common loan terms:
Collateral. To minimize their risk, lenders require you to put up collateral for a renovation loan. In most cases, including ABL loans, this is the property being renovated.
Down payment. Another way lenders mitigate risk is by requiring a down payment. This ensures you have some skin in the game. At ABL, we require a down payment of at least 15% on the purchase price of a fix-and-flip.
Interest rate. Mortgage rates on non-owner occupied renovation loans vary by lender and market. At ABL, we offer fix-and-flip loans at rates as low as 9.5% and cash-out refinance loans at rates as low as 11%.
Term length. Since renovation projects have fixed timeframes, renovation loans tend to have short terms. For example, ABL renovation loans have 12-month terms, after which the loan balance is due.
Prepayment penalty. Some lenders charge prepayment penalties for paying off your renovation loan early—but not ABL. The earlier you pay off an ABL loan, the more you’ll save in interest costs.
Payment structure. Most renovation loans, including ABL loans, only require interest payments during the loan term. This helps keep your holding costs low during the most cost-intensive phase of a fix-and-flip project.
Personal guarantee. Many lenders like ABL require you to make a personal guarantee that you will honor the renovation loan terms. That means you’ll repay the loan if your business can’t.
6 Tips for Qualifying for a Non-Owner Occupied Renovation Loan
Now that you know what it takes to get a non-owner occupied renovation loan, here are some tips to improve your chances of qualifying:
1. Improve Your Credit
The higher your credit score, the better. Even if you already meet the minimum credit requirement, raising your score could help improve your loan terms. For example, you may qualify for a lower interest rate or lower fees.
2. Make a Large Down Payment
A large down payment tells lenders you have skin in the game and are less likely to walk away from the loan as a result. By increasing your down payment, you’ll also decrease the actual loan size, leading to lower overall interest costs.
3. Provide a Detailed Renovation Plan
Lenders like to see a clear plan for a renovation project. This should include a list of what you’re fixing, required materials, cost breakdowns, contractor bids, and timelines. The more detailed your plan, the more confident your lender will be in the project.
4. Organize Your Loan Documents
Gather any required loan documents, including tax returns, LLC documents, contractor agreements, property insurance quotes, etc. This streamlines the loan approval process so you don’t waste time getting your project off the ground.
5. Demonstrate Your Experience
While experience isn’t always necessary, it definitely helps. So if you have past renovation or flipping experience, highlight it! This will make your lender more likely to approve your loan and may even lead to better loan terms.
6. Choose the Right Lender
Getting a non-owner occupied renovation loan from a traditional lender is hard, if not impossible, due to stricter regulations. Instead, choose a private hard money lender like ABL that specializes in renovation loans. Your loan approval will be much faster and easier.
Get a Non-Owner Occupied Renovation Loan From ABL
Since 2010, ABL has been helping real estate investors nationwide with fast, flexible funding. We’re confident we can help you, too. Whether you’re renovating a property to flip or rent out, our hard money loans can help you get there. Pre-qualify today!