What is an ARV loan (After Repair Value Loan), or a loan that is for flipping homes, and how exactly does it work?

An ARV Loan is for people that need money for flipping homes.  These loans are not designed for people that want to buy a "Fixer Upper" to live in.  We have investors that will lend money to individuals or LLC's that are in the business of buying homes, fixing them, and then selling them for a profit.  

Our sources of funding (usually private individuals) will fund money to experienced "Flippers" or Contractors that are in the business of buying, fixing and selling homes.  We have lent money for up to 100% of the purchase price after we have investigated the value of the house after the home is rehabilitated to be at or greater of 65% Loan to value.  

An example of this would be if a home was purchased for say $100,000 in a run-down condition.  But after the repairs of $40,000, the house would sell for say $200,000.  Our investors have lent money on the entire $100,000 purchase price.  In this example, the ARV Loan to Value would be 50%.  The Buyer, in this example, would have to have the $40,000 verified upfront for the repairs and put it into an account that the lender would have the ability to distribute as the repairs are completed this is called a Fund Control Account.    

The Loan will be due on sale.  In other words, once the house is completed and a new buyer is contracted to purchase the proceeds of the sale will first pay off the loan and the rest will be the profit on the sale.   If you need assistance with marketing and selling your flips, in the Sacramento area, we have Agents that can list and sell the home for you.  

Bullet Items that you should know:

1. You will need to have money for the repairs, at a bare minimum, and may be required to put additional money into the equity position in the form of a down payment. 
2.  In most cases, we will require an account to be set up to hold the repair money so that our investors can be sure that the work will be done (A Fund Control Account).  This is usually done through escrow or an outside company. 
3. We will generally need a contractor's bid on the repairs that will be made not an estimate from someone who is not a contractor.  This will establish the costs needed by the borrower to have on hand and that we will hold and distribute when the repairs are completed.  This is generally done on a schedule that is pre-determined before the loan is funded.
4. We will require an appraisal from a licensed appraiser (of our choice) establishing a current "as is" value and a future "fixed up" value.  
5. Generally, our investors like to see experienced flippers or licensed contractors that have done several flips in the past to lend money.  The more experienced the flipper or contractor the better the terms will be.  If you are new to this process we will generally require more of the buyer's investment into the project up front, generally in the form of a higher down payment.  
6. Funds will be dispersed as the per a pre-determined schedule and will require an inspection either from us or the lender directly to make sure the work is being done properly and per original plans.
7.  When the house sells the loan will be paid in full first and the profit is kept by the Flipper/Contractor. 


Key Factors to obtaining an ARV Loan:

1. Experience with flipping
2. Cash into project (equity position)
3. The use of a contractor.
4. The setting up of a distribution account to hold the rehab money.
5.  Doing the work in a workmanlike manner. 
  
General Terms of these Loans:

These loans are short-term generally no longer than a year with a balloon payment.  The interest rates are generally between 10.99 and 16% depending on the situation and the interest is paid back at clsoing along with the original principle balance.  The cost of the money is going to be between 3-7% paid at closing.